Question

In: Economics

In an open economic C = 25+0.92(Y-T) Y=6755 G=164 T=104 I=1406-13r NX=100-10e r*=19 If NX change...

In an open economic

C = 25+0.92(Y-T)

Y=6755

G=164

T=104

I=1406-13r

NX=100-10e

r*=19

If NX change to NX= 200-10e. (the exports have increased)

What will happen to Y, C, S, I?

Solutions

Expert Solution

Y = C + I + G + NX

C = 25+0.92(Y-T)

Y=6755

G=164

T=104

I=1406-13r

NX=100-10e

r*=19

C = 0.92(6755-104) = 6118.92

S = Y - C - T

S = 6755 - 6118.92 - 104 = 532.08

I = 1406 -13*19 = 1159

Putting values in equation for Y, we get:

6755 = 25+0.92(6755-104) + 1406 -13*19 + 164 + 100 - 10e

6755 = 25+ 6118.92 + 1406 - 247+ 164 + 100 - 10e

6755 = 25+ 6118.92 + 1406 - 247+ 164 + 100 - 10e

10e = 7566.92 - 6755

10e = 811.92

e = 81.192

Now NX changes to 200 - 10e

Putting value in national income identity, we get:

Y = 25+0.92(Y-104) + 1406-13*19 + 164 + 200 - 10 * 81.192

Y = 25+0.92(Y-104) + 1406 - 247 + 164 + 200 - 811.92

0.08Y = 25 - 95.68 + 1406 - 247 + 164 + 200 - 811.92

0.08Y = 1795 - 1154.6

0.08Y = 640.4

Y = 8005

Now, calculating C

C = 25+0.92(Y-T)

C = 25 + 0.92 ( 8005 - 104)

C = 7293.92

S = Y - C = 8005 - 7293.92

S = 711.08

I = 1406-13r

I = 1159

Hence, as exports increased, Y, C and S increased while I remained the same.

Rahul Sunny answered 2 years ago
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