Calculate the present value of output in this economy

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Reference no: EM133336874

Question: Consider a country that experiences a positive, one-time shock to its output. Assume that output is initially $1,200 per year and the world real interest rate is 6%. In year 0, output increases by 2U%, after which it returns to its initial level.

a. Calculate the present value of output in this economy.

b. Assume the economy is a closed economy. Calculate the present value of consumption and level of consumption each period, assuming the country engages in consumption smoothing.

c. Assume the economy is an open economy. Calculate the present value of consumption and the level of consumption each period, assuming the country engages in consumption smoothing.

Reference no: EM133336874

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