Assignment Task
Task
Prior assumptions for all the questions (unless stated otherwise):
a. Private consumption is a function of disposable income and wealth.
b. Investment depends only on the real interest rate
Question 1
- present your answer in the designated places below using graphs and short explanations.
- Assume that the economy is open and that CF Yfull.
- (a) (5%) Describe, using the four diagrams: (Interest rate – Y, CF – r,
- Import surplus – real exchange rate, inflation rate – output)
- the initial point of the short run equilibrium.
- Is there an import surplus or export surplus? (i.e. is IM-EX>
- If no shocks occur, what will happen to the inflation rate, the interest rate, the capital
- flow, the real exchange rate and Import-Export in the long run? Why?
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