Consider an economy described by the following equation: Y = C+I+G+NX. Where Y = 5 000, G = 1 000, T = 1 000, C = 250+0.7 (Y-T), I = 1 000-5 000, Nx = 500-500, = = 5%.
(1) What are the national savings, investment, trade balance and equilibrium exchange rate in this economy?
(2) If government expenditure increases by 250, what will be the national savings, investment, trade balance and equilibrium exchange rate respectively? And explain why these variables change.
(3) What if interest rates on the world market rose from 5% to 10%? Explain your answer.
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