Now, assuming the economy is open with government (G) participation and external trade which is summarized as follows; export(X)= 100-0.10Y, import(M)=50, G=100, Taxes(T)= 100 and C, I, M S , M t , and M z the same as defined in (a) above. Calculate; i. The equilibrium income and interest rate in this new economy. (2 marks) ii. The level of C, I, M t , and M z when the economy is in equilibrium (4 marks) iii. Assuming capital is perfectly mobile in this economy, graphically sketch the IS-LM- BOP frame work of this economy. Comment on the balance of payment situation in this economy. (2 marks) iv. What exchange rate policy should government implement in (iii) to enhance income and why?

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Now, assuming the economy is open with government (G) participation and external trade which
is summarized as follows; export(X)= 100-0.10Y, import(M)=50, G=100, Taxes(T)= 100 and C,
I, M S , M t , and M z the same as defined in (a) above. Calculate;
i. The equilibrium income and interest rate in this new economy. (2 marks)
ii. The level of C, I, M t , and M z when the economy is in equilibrium (4 marks)
iii. Assuming capital is perfectly mobile in this economy, graphically sketch the IS-LM-
BOP frame work of this economy. Comment on the balance of payment situation in
this economy. (2 marks)
iv. What exchange rate policy should government implement in (iii) to enhance income
and why?

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