Coordination of policy and the global economy: Think about a free market where the real exchange rate is constant and set at 1. Taxes, government spending, investment, and consumption are all determined by

$$C=10+0.8(Y-T), I=10, G=10, \text { and } T=10$$

Imports and exports are given by

$$I M=0.3 Y \text { and } X=0.3 Y^*$$

where Y* denotes foreign output. Why is it challenging to establish in practise fiscal coordination, such as the common growth in G and G* in the preceding part?

Coordination of policy and the global economy: Think about a free market where the real exchange rate is constant and set at 1. Taxes, government spending, investment, and consumption are all determined by

$$C=10+0.8(Y-T), I=10, G=10, \text { and } T=10$$

Imports and exports are given by

$$I M=0.3 Y \text { and } X=0.3 Y^*$$

where Y* denotes foreign output. Given Y *, find the domestic economy's equilibrium production. What does this economy's multiplier mean? What would the multiplier be if we closed the economy, making exports and imports both equal to zero? Why would a closed economy's multiplier be different?

Openness, multipliers, and fiscal policy: Consider the following equations to describe an open economy.

$$\begin{aligned} C &=c_0+c_1(Y-T) \\ I &=d_0+d_1 Y \\ I M &=m_1 Y \\ X &=x_1 Y^* \end{aligned}$$

The propensities to import and export are represented by the parameters m1 and x1. Consider foreign income, Y *, to be fixed and assuming that the real exchange rate is fixed at a value of 1. Additionally, consider the notions of fixed taxes and exogenous government purchases (i.e., decided by the government). We investigate the impact of changes to G under various import propensity hypotheses. Consider two economies with m1 values of 0.5 and 0.1, respectively, (c1 + d1) = 0.6 is the characteristic of each economy. Which economy's fiscal policy will affect output most significantly? Which economy's fiscal policy will impact net exports most significantly?

Openness, multipliers, and fiscal policy: Consider the following equations to describe an open economy.

$$\begin{aligned} C &=c_0+c_1(Y-T) \\ I &=d_0+d_1 Y \\ I M &=m_1 Y \\ X &=x_1 Y^* \end{aligned}$$

The propensities to import and export are represented by the parameters m1 and x1. Consider foreign income, Y *, to be fixed and assuming that the real exchange rate is fixed at a value of 1. Additionally, consider the notions of fixed taxes and exogenous government purchases (i.e., decided by the government). We investigate the impact of changes to G under various import propensity hypotheses. Consider two economies with m1 values of 0.5 and 0.1, respectively, (c1 + d1) = 0.6 is the characteristic of each economy. Substitute the necessary parameter values to calculate your answers to the preceding parts for each economy.

Openness, multipliers, and fiscal policy: Consider the following equations to describe an open economy.

$$\begin{aligned} C &=c_0+c_1(Y-T) \\ I &=d_0+d_1 Y \\ I M &=m_1 Y \\ X &=x_1 Y^* \end{aligned}$$

The propensities to import and export are represented by the parameters m1 and x1. Consider foreign income, Y *, to be fixed and assuming that the real exchange rate is fixed at a value of 1. Additionally, consider the notions of fixed taxes and exogenous government purchases (i.e., decided by the government). We investigate the impact of changes to G under various import propensity hypotheses. Consider two economies with m1 values of 0.5 and 0.1, respectively, (c1 + d1) = 0.6 is the characteristic of each economy. Assume that one of the economies is significantly bigger than the other. Which economy do you anticipate having a higher m1 value? Explain.

Openness, multipliers, and fiscal policy: Consider the following equations to describe an open economy.

$$\begin{aligned} C &=c_0+c_1(Y-T) \\ I &=d_0+d_1 Y \\ I M &=m_1 Y \\ X &=x_1 Y^* \end{aligned}$$

The propensities to import and export are represented by the parameters m1 and x1. Consider foreign income, Y *, to be fixed and assuming that the real exchange rate is fixed at a value of 1. Additionally, consider the notions of fixed taxes and exogenous government purchases (i.e., decided by the government). We investigate the impact of changes to G under various import propensity hypotheses. When government purchases increase by one unit, how do net exports change?

Openness, multipliers, and fiscal policy: Consider the following equations to describe an open economy.

$$\begin{aligned} C &=c_0+c_1(Y-T) \\ I &=d_0+d_1 Y \\ I M &=m_1 Y \\ X &=x_1 Y^* \end{aligned}$$

The propensities to import and export are represented by the parameters m1 and x1. Consider foreign income, Y *, to be fixed and assuming that the real exchange rate is fixed at a value of 1. Additionally, consider the notions of fixed taxes and exogenous government purchases (i.e., decided by the government). We investigate the impact of changes to G under various import propensity hypotheses. Let's say that the government buys one more unit. What impact does it have on output? (Assume that 0 < m1 < c1 + d1 < 1. Explain why.)

Openness, multipliers, and fiscal policy: Consider the following equations to describe an open economy.

$$\begin{aligned} C &=c_0+c_1(Y-T) \\ I &=d_0+d_1 Y \\ I M &=m_1 Y \\ X &=x_1 Y^* \end{aligned}$$

The propensities to import and export are represented by the parameters m1 and x1. Consider foreign income, Y *, to be fixed and assuming that the real exchange rate is fixed at a value of 1. Additionally, consider the notions of fixed taxes and exogenous government purchases (i.e., decided by the government). We investigate the impact of changes to G under various import propensity hypotheses. Write the domestic products market's equilibrium state, then find Y.

Getting rid of a trade deficit: Now, note the national income identification. Assume once more that output reaches its baseline level in the medium term. What must happen to domestic demand (C + I + G) over the long term if NX rises to zero? What government initiatives are possible to lessen domestic demand over the long term? List the parts of the domestic demand that each of these measures affects.

Getting rid of a trade deficit: Consider an economy where output is at its natural level and there is a trade deficit of 1NX 6 02. Let's assume that, despite output potentially deviating from its normal level in the short run, it does so in the medium term. Assume that the real exchange rate has no impact on the natural level. What needs to happen to the actual exchange rate over the medium term in order to close the trade gap and bring NX to zero?

International demand and net exports: Net exports are undoubtedly impacted by foreign output. Describe how you can do this.

International demand and net exports: What must happen to private savings if the proper equation is used? Explain.

International demand and net exports: What happens to domestic investment if the interest rate doesn't change? What will happen to the domestic budget deficit if taxes are fixed?

International demand and net exports: Let's say that foreign output increases. Display the impact on the national economy. How does it impact domestic production? regards to domestic net exports?