(Answered) Cnsider the following model of a small open economyy

Management Studies

Consider the following model of a small, open economy:

Y = 4000
Y^d = C + I + G + NX
Y = Y^d
C = 400 + 0.8(Y - T)
I = 800 - 5000r
NX = 800 - 400_E (_{E = Exchange Rate})
G = 300
T = 1000

A. Assuming that the world's real interest rate is 8% (r_w^* = 0.08), what will national saving (S) and investment (I) be for this economy?

B. What are the equilibrium values of net exports (NX) and the real exchange rate (_E)?

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