Finding LM & IS equation, equilibrium values of GDP, exchange rate, net exports/trade surplus, investment and budget surplus/deficit.
1. Utilizing the subsiquent macroeconomic relations for the economy of Luv-U-Mania and answer the problems given below. Luv-U-Mania is a small open economy with floating exchange rates.
C = 3.000 * 0.9 (Y-T)
I =12,000 - 110.00 (r)
G = 26,000
T = 6,000 * 0.1 Y
X = 50,000 - 500(e)
M = 4,000 + 10(e) + 0.1Y;
Ms = 100,000
Md = 0.48Y- 150(r);
r = r* = 0.10
Equilibrium condition for the real sector: Y = C + I + G + (X - M)
Equilibrium condition for the monetary sector Md =
(a) Find the LM* equation for this economy.
(b) Find the IS* equation for this economy.
(c) Find the equilibrium values of the following variables:
(d) Equilibrium GDP =
(e) Equilibrium Exchange rale (e) =
(f) Equilibrium Net Exports - Equilibrium Trade Surplus =
(g) Equilibrium Investment =
(h) Equilibrium Budget Surplus/Deficit =