(b) Derive the equation for the IS curve. [HINT: Recall that the equilibrium in

(b) Derive the equation for the IS curve.
[HINT: Recall that the equilibrium in the goods market for an open economy is given
by Y = C + I + G + NX; then solve for Y as a function of r and e]
(c) Derive the equation for the LM curve.
[HINT: Recall that the equilibrium in the financial market is given by MS/P = L(rY); then solve for Y as a function of r]
(d) When there is perfect capital mobility it is possible to assume that the equilibrium in international capital markets implies that interest rates here and abroad must be equal. That is
r = rf
Otherwise capital would move towards more profitable markets. Assume that this economy cannot control the foreign interest rate (rf). That is the interest rate is exogenously determined (i.e. determined outside the model). Notice that in this case the equilibrium in the financial market (the LM) is enough to determine equilibrium Y. Calculate equilibrium Y if rf = 2.(e) Calculate equilibrium C I and NX. [HINT: Knowing Y and r it is possible to pin down C and I. Also with Y C I and G and knowing that Y = C + I + G + NX can pin down NX]
(fWhat is the value of e that guarantees equilibrium in the goods market?