Dec 12th 2012, 20:20:22
Any help or guidance would be much appreciated!
1. Your country faces the following
In the product market: IS: r = 6,752 - 37Y
In the money market: LM: r = 1.75
In the BOP market: BP: r = -684 + 62Y
a. Is this an example of the classical case? If yes, explain. If no, show how it would look if it were the classical case.
b. What is the equilibrium level of GDP and the interest rate? Is there a BOP equilibrium or a BOP deficit/surplus. If the money supply is increased by 23% what is the new equilibrium GDP and interest rate? What happens to the BOP? Explain.
c. The country devalues its currency. given the above conditions, will this eliminate any BOP deficit? Explain.
1. Your country faces the following
In the product market: IS: r = 6,752 - 37Y
In the money market: LM: r = 1.75
In the BOP market: BP: r = -684 + 62Y
a. Is this an example of the classical case? If yes, explain. If no, show how it would look if it were the classical case.
b. What is the equilibrium level of GDP and the interest rate? Is there a BOP equilibrium or a BOP deficit/surplus. If the money supply is increased by 23% what is the new equilibrium GDP and interest rate? What happens to the BOP? Explain.
c. The country devalues its currency. given the above conditions, will this eliminate any BOP deficit? Explain.