100% Original, Plagiarism Free, Tailored to your instructions

Order Now!

Macroeconomics Long Run Open Economy

Assignment Requirements
The paper needs to be answered showing all necessary diagrams and calculations. Further instructions are on the paper.
Suppose the world consists of only one pair of open economies, country A and country B, and these countries only trade with each other. Country A only produces food whose output is measured in standard units, where one unit of YA is equal to 1,000 kilograms of food. Country B only produces clothing in standard units, where one unit of YB is equal to 100 kilograms of clothing. The table below provides some selected information about the economies of these countries.  Keep your answers to at least4 decimal places.

Country A
Country B

Production function: YA = 3xK0.50L0.50
Capital stock: K = 1000
Labour supply: L = 1000
Production function: YB = K0.50L0.50
Capital stock: K = 900
Labour supply: L = 900

Consumption function: C = 500 + 0.70(Y-T)
Consumption function: C = 150 + 0.65(Y-T)

Investment function: I = 400 – 25r
Investment function: I = 200 – 50r

Gov’t sector: G = 500 & T = 501
Gov’t sector: G = 110 & T = 110

Net export function: NX = 850 – 925ε

Monetary sector:
Real money demand = = 0.65Y – 200r
Nominal price level = 1.2
Monetary sector:
Real money demand = = 0.9Y – 200r
Nominal price level = 1.04

Use the long-run classical model of an open economy to answer the following questions. Both countries have perfect financial capital mobility and no risk premium.
Hint: Since there are only two open economies, both are large open economies.
a)      Determine the long-run equilibrium level of food and clothing production. (4 points)
b)      Suppose absolute purchasing power parity holds for these countries.  For each country, determine the long-run equilibrium levels of:

The trade balance;
The domestic nominal money supply;
The real exchange rate (in the usual orientation # of foreign per domestic, εFC/DC);
The nominal exchange rate (in the usual orientation of # of foreign currency per domestic currency);
The domestic real rate of interest (in percentage points, so if r = 3, this is interpreted as 3%);
The real wage rate of labour and real rental rate of capital;
The unemployment rate; and
Output per worker.

Support your answer with one set of diagrams, one for the (Country A) loanable funds market and one for the (Country A) foreign exchange market.  Which country has a better standard of living? (11 points)
c)       Suppose the government of country A decides to it would like to move to balanced trade by altering the level of government spending on goods & services. Is this possible? If so, redo parts (a) and (b). Explain in words which country has a better standard of living & why.  (15 points)
Order Now

Our Service Charter

  1. Excellent Quality / 100% Plagiarism-Free

    We employ a number of measures to ensure top quality essays. The papers go through a system of quality control prior to delivery. We run plagiarism checks on each paper to ensure that they will be 100% plagiarism-free. So, only clean copies hit customers’ emails. We also never resell the papers completed by our writers. So, once it is checked using a plagiarism checker, the paper will be unique. Speaking of the academic writing standards, we will stick to the assignment brief given by the customer and assign the perfect writer. By saying “the perfect writer” we mean the one having an academic degree in the customer’s study field and positive feedback from other customers.
  2. Free Revisions

    We keep the quality bar of all papers high. But in case you need some extra brilliance to the paper, here’s what to do. First of all, you can choose a top writer. It means that we will assign an expert with a degree in your subject. And secondly, you can rely on our editing services. Our editors will revise your papers, checking whether or not they comply with high standards of academic writing. In addition, editing entails adjusting content if it’s off the topic, adding more sources, refining the language style, and making sure the referencing style is followed.
  3. Confidentiality / 100% No Disclosure

    We make sure that clients’ personal data remains confidential and is not exploited for any purposes beyond those related to our services. We only ask you to provide us with the information that is required to produce the paper according to your writing needs. Please note that the payment info is protected as well. Feel free to refer to the support team for more information about our payment methods. The fact that you used our service is kept secret due to the advanced security standards. So, you can be sure that no one will find out that you got a paper from our writing service.
  4. Money Back Guarantee

    If the writer doesn’t address all the questions on your assignment brief or the delivered paper appears to be off the topic, you can ask for a refund. Or, if it is applicable, you can opt in for free revision within 14-30 days, depending on your paper’s length. The revision or refund request should be sent within 14 days after delivery. The customer gets 100% money-back in case they haven't downloaded the paper. All approved refunds will be returned to the customer’s credit card or Bonus Balance in a form of store credit. Take a note that we will send an extra compensation if the customers goes with a store credit.
  5. 24/7 Customer Support

    We have a support team working 24/7 ready to give your issue concerning the order their immediate attention. If you have any questions about the ordering process, communication with the writer, payment options, feel free to join live chat. Be sure to get a fast response. They can also give you the exact price quote, taking into account the timing, desired academic level of the paper, and the number of pages.

Excellent Quality
Zero Plagiarism
Expert Writers

Instant Quote

Single spaced
approx 275 words per page
Urgency (Less urgent, less costly):
Total Cost: NaN

Get 10% Off on your 1st order!