There are questions and answers. I want to know explanation how to get this answers. Thant you:)
This is it;
-The home country is currently in its LR eq'm with:
P=1, M1s=1, G1=T1=0, Y1=Ypotential
-Foreign variables: i*=2(%), P*=1
-Assume that the IS curve is a straight line, and that its slope is preserved.
-Investment depends negatively on i.
-Money demand: Md=Px(Y-i)
-The initial IS curve labelled IS1 is shown in the handout.
-In the LR:
1) PPP holds, and
2) the expected ER is equal to the spot ER.
Q. Given the initial values of P=1 and M1s=1, find the equation of the initial LM1 curve.
Q. Using the initial IS1 curve in the handout and the LM1 curve obtained in Q1, find the values of (Y,i) in the initial eq'm .
Q. Given the "Equilibrium1", find the values of (i, E, Ee) in the corresponding initial eq'm in the FX market.
All the answers were obtained according to the data quoted in this task because, for example, i = Y-1, we have a formula Md = Px (Yi), Md and Px is 1, and here we have what others The following answers are as specified in the job.
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Thank you for your attention and answer to my question. I have a follow up question that is actually the second stage to my initial question that you answered. The first question was the first stage of the total question that I want answered. I will submit it and gladly pay the fee for answering, as this has been a question over which I’ve wondered for a long time. Again, thank you very much for your help. John Dawson