DSE 2012

Posted by SoniaKapoor on Mar 18, 2014; 1:38pm
URL: http://discussion-forum.276.s1.nabble.com/DSE-2012-tp7585294.html

Consider a small open economy with xed nominal exchange rate (E),
xed domestic price level (P) and fixed foreign price level (P*). Let e be the
corresponding real exchange rate. The goods market equilibrium condition is given by the following IS equation:
Y = C + I + G + X - IM/e

where
C = c0 + c1Y represents domestic consumption
I = d1Y - d2r represents domestic investment
G represents government expenditure
X = x1Y*- x2e represents export
Y*  represents income of the foreign country
IM = m1Y + m2" represents import