Macroeconomics, question

Reply Wed 24 Jun, 2015 05:34 am
Like you know it's time of exams, and I have a problem with one question (edit 2 questions Razz). Maybe you could help me.

1. Let's consider a closed economy, with three different markets: production factor market, goods and services and financial market. It is assumed that there is a government, which participants in these markets.
a) describe the flow of money in the economy. Draw a graph.
b) how are investments financed in this model of economy
c) what is a role of real interest rate? How does it influence flow of money?

2. Consider small open economy:
a) how does real exchange rate affect economic activitiy and the total production in the country (consider net export)
b) suppose that the real exchange rate falls by 2% and that the domestic inflation is 5% and foreign inflation is 3%. How does it influence nominal exchange rate?

Thank you for your answers!
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