3. Answer the following numerical questions about the IS-FX model. a. The consumption function is C = 1.5 + 0.5(Y – T). What is the marginal propensity to consume? What is the marginal propensity to save? b. The trade balance is TB = 5(1 – 1/E) – 0.2(Y – 8). What is the marginal propensity to consume foreign goods? What is the marginal propensity to consume home goods? c. The investment function is I = 3 – 10i. What is investment when the interest rate i is equal to 5%? d. Assume government spending is G. Add up the four components of demand and write down the expression for D. e. Assume forex market equilibrium is given by I = (1/E – 1) + 0.15, where the two foreign return terms on the right are expected depreciation and the foreign interest rate. What is the foreign interest rate? What is the expected future exchange rate?
3. Answer the following numerical questions about the IS-FX model.
a. The consumption function is C = 1.5 + 0.5(Y – T). What is the marginal propensity to consume? What is the marginal propensity to save?
b. The trade balance is TB = 5(1 – 1/E) – 0.2(Y – 8). What is the marginal propensity to consume foreign goods? What is the marginal propensity to consume home goods?
c. The investment function is I = 3 – 10i. What is investment when the interest rate i is equal to 5%?
d. Assume government spending is G. Add up the four components of demand and write down the expression for D.
e. Assume forex
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