Consider the following economy (with ﬂexible exchange rate system): • Desired consumption: Cd = 300 + 0.5Y −2000r • Desired investment: Id = 200−3000r • Government purchases: G = 100 • Net export: NX = 350−0.1Y −0.5e • Real exchange rate: e = 20 + 1000r • Full employment: ¯ Y = 900. • Nominal money stock: M = 4354 • Real money demand: L = 0.5Y −200r
(a) Find the equations for NX(r,Y )) and Sd(r,Y )−Id(r) and show the graph characterizing goods market equilibrium for the given full-employment output level.
(c) Present the goods market equilibrium condition graphically while depicting all the possible points and intersections using their correct values (5 points)
(d) Find IS equation (2 points)
(e) Determine the LM equation using the GE price level (4 points)