Hi this is a macroeconomic question. Please help. Thanks a bunch?

Question

Consider an economy described by the following equations: Y = C + I + G + NX, Y = 5,000, G = 1,000, T =1,000, C = 250 + 0.75(Y – T), I = 1,000 – 50r, NX = 500 – 500ε, r = r*= 5 (a) In this economy, solve for national saving, investment, the trade balance and the equilibrium exchange rate. (b) Suppose now that G rises to 1,250. Solve for national saving, investment, the trade balance and the equilibrium exchange rate. Explain what you find. (c) Now suppose that the world interest rate rises from 5 to 10 percent (G is again 1,000). Solve for national saving, investment, the trade balance and the equilibrium exchange rate. Explain what you find.

Answer 1

Y = C + I + G + NX

S=Y-C(Y-T)-G=I+NX

♦ a)

r=5

G=1'000

T=1'000

C = 250 + 0.75(Y – T) = 250+0.75(5'000-1'000) = 3'250

I = 1'000 - 50r = 1'000 -50*5 = 1'000-250 = 750

5'000=3'250 + 750 + 1'000 + (500-500ε) =5'500 - 500 ε

500ε = 500

ε=500/500=1

NX = 500 – 500ε = 500-500 = 0

S=750+0=+750

♦ b)

r=5

G=1'250

T=1'000

C = 250 + 0.75(Y – T) = 250+0.75(5'000-1'000) = 3'250

I = 1'000 - 50r = 1'000 -50*5 = 1'000-250 = 750

5'000=3'250 + 750 + 1'250 + (500-500ε) =5'750 - 500 ε

500ε=750

ε=750/500=1.5

NX = 500 – 500*1.5 = 500-750 = -250

S=750 - 250 = +500

ΔS= 500-750= -250 (lower national saving)

ΔNX= -250 (negative trade balance - trade deficit)

(ε)  1.0 → 1.5 (increase in exchange rate / currency appreciation)

♦ c)

r=10

G=1'000

T=1'000

C = 250 + 0.75(Y – T) = 250+0.75(5'000-1'000) = 3'250

I = 1'000 - 50r = 1'000 -50*10 = 1'000-500 = 500

5'000=3'250 + 500 + 1'000 + (500-500ε) =5'250 - 500 ε

500ε=250

ε=0.5

NX = 500 – 500ε = 500-250 = +250

S=500+250=+750

ΔI= -250 (lower domestic investment)

ΔNX= +250 (positive trade balance - trade surplus)

(ε)  1.0 → 0.5 (fall in exchange rate / currency depreciation)

Answer 2

Y = C + I + G + NX

Y = 5,000

G = 1,000

T = 1,000

C = 250 + 0.75(Y-T)

I = 1,000 - 50r

NX = 500 - 500ε

r = r* = 5

Laying it out like this makes it much easier to read.  

For (a), it's a simple plug in the equation problem:

Y = C + I + G + NX

5,000 = (250 + 0.75[5000-1000]) + (1000-250) + 1000 + (500-500ε)

5000 = (250 + 3000) + 750 + 1000 + 500 - 500ε

5000 = 3250 + 750 + 1000 + 500 -500ε

5000 = 5500 - 500ε

500ε = 500

ε=1

ε I assume is your equilibrium exchange rate variable, so that's = 1.  I don't know what national saving would be, but I bet you could figure it out (I forgot how to do this basic math) and the trade balance is obviously 0 net.

For (b), if G rose to 1250 from 1000, we would end up with 5000 = 5750 - 500ε, and as a result ε=1.5  NX thus decreases to -250, I stays the same (r did not change).  I'm not sure what you need to explain.

(c) here we have r increase from 5 to 10.  Note that this will affect I, obviously, and also NX via ε.  With an increase in r to 10, I will decrease from 750 to 500.  Now our equation will end up being:

5000 = 5250 - 500ε

solving for ε now gives us ε=0.5, which means NX = (+)250.

Probably wouldn't do well to copy verbatim what I've done here, since all I've done is go through the math, but hopefully that helps you get the complete answer.

Answer 3

Economies cannot be described by a set of simple linear equations, and any economist who believes they can should have their head examined!

Answer 4

dont have a clue.are you a genius or what ?? or joking us.