3. Assume that a small open economy can be described as follows: Y=C+I+G + NX Y = F(L,K) = Y = 5000 C = 1000+ 0.5(Y - T)

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3 Assume That A Small Open Economy Can Be Described As Follows Y C I G Nx Y F L K Y 5000 C 1000 0 5 Y T 1 (51.89 KiB) Viewed 26 times

3. Assume that a small open economy can be described as follows: Y=C+I+G + NX Y = F(L,K) = Y = 5000 C = 1000+ 0.5(Y - T) I = 2000 20r G = G = 1600 T = T = 1000 r = r* = 6% Please note that economists are treating interest rates as whole numbers, not decimals, e.g., if the interest rate is 3%, then r = 3. a. What is the trade balance? Is the country experiencing a trade surplus, a trade deficit, or balanced trade? Explain. b. Is the country borrowing or lending money on the world financial markets? If so, how much? Explain.