Equations characterize a large open economy

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Reference no: EM13981958

Assume that the following equations characterize a large open economy:

(1) Y = 2(G+T)

(2) Y = C + I + G + NX

(3) C = 1/2(Y – T)

(4) I = 2,100 – 100r

(5) NX = 500 – 500e

(6) CF = –200r

(7) CF = NX

(8) G = 1,500

(9) T = 1,000.

Where NX is net exports, CF is net capital outflow, and e is the real exchange rate. Solve these equations for the equilibrium values of C, I, NX, CF, r, and e. (Hint: Substitute equations (9) and (1) into (3), then substitute (1), (3), (4), (8), and (5) into (2). Then substitute (5) and (6) into (7). Now you have two equations in r and e. Check your work by seeing that all of these equations balance given your answers. Start: Write equation (2) as Y = C + I + G + CF, since NX=CF and then get equilibrium r)

Reference no: EM13981958

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