Problem 1

1. GDP is 1200, Consumption is 900, gross private domestic investment is 150, exports are 50, and imports are 125. Depreciation is 40. What is the Government spending? What is the value of national saving (S)?

2. If an American can purchase 40,000 British pounds for $90,000, the dollar rate of exchange for the pound is

3. If a European importer can buy $10,000 for 11,100 euros, the exchange rate for the euro is

Problem 2

Let the money demand function by (M/P)d = 1000-100r with the money (M) = 1,000 and price (P) = 2

a. Find the equilibrium interest rare

b. What happens in the FED ( federal Reserve Bank) increases the money supply to $1,200

c. What can the FED do to bring interest rate to 7%