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Assume that the following equations characterize a large open economy:
Assume that the following equations characterize a large open economy:(1) Y = 5,000(2) Y = C + I + G + NX(3) C = 1/2(Y – T)(4) I = 2,000 – 100r(5) NX = 500 – 500ε(6) CF = –100r3(7) CF = NX(8) G = 1,500(9) T = 1,000.Where NX is net exports, CF is net capital outflow, and ε is the real exchange rate.Solve these equations for the equilibrium values of C, I, NX, CF, r, and ε. (Hint:Substitute equations (9) and (1) into (3), then substitute (1), (3), (4), (8), and (5) into(2). Then substitute (5) and (6) into (7). Now you have two equations in r and ε.Check your work by seeing that all of these equations balance given your answers.)
