Question

The economy of Irinika has the following parameters: Autonomous exports = $520 million Autonomous imports = $220 million MPM = 0.20 a. The balance of trade at an income of $700 is $ . Remember to enter a minus (-) sign to indicate negative values. b. The balance of trade at an income of $2,000 is $. c. The income level at which there is a zero balance of trade is $ .

Complete the balancing row, in the table below, for the economy of Kaniria which is in equilibrium.

Y	T	YD	C	S	I	G	X	IM	XN	AE
$	$	$	$	$380	$100	$1,080	$	$115	$8	$1,700

Answer 1

(a) Autonomous export = $520 million

Autonomous import = $220 million

MPM = 0.20.

Import function : IM = Atunomous import + MPM * Y

IM = 220 + 0.2Y

Net export: NX = Export - Import

=> NX = 520 - (220 + 0.2Y)

=> NX = 520 - 220 - 0.2Y

=> NX = 300 - 0.2Y

Put Y = 700

=> NX = 300 - 0.2(700)

=> NX = 300 - 140

=> NX = 160

Note: Net export and balance of trade both are same.

Hence, balance of trade at an income of $700 is $160.

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(b) NX = 300 - 0.2Y

Put Y = 2000

=> NX = 300 - 0.2(2000)

=> NX = 300-400

=> NX = -100

Hence, the balance of trade at an income of $2000 is -$100

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(c) Balance of trade is zero.

Put NX = 0 and solve for Y

=> NX = 300 - 0.2Y =0

=> 300 - 0.2Y = 0

=> Y = 300 / 0.2

=> Y = 1500

The income level at which there is zero balance of trade is $1500.

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(d) NX = X - IM

=> NX = X - 115

At equilibrium; S = I + NX
=> 380 = 100 + (X - 115)

=> 380 = 100 + X - 115

=> X = 380 - 100 + 115

=> X = 395

Note: There is a need the value of AE for further calculation.

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