1. Suppose you’re told that C = 50 + 0.8Yd, M = .12Y, and T =...

1. Suppose you’re told that C = 50 + 0.8Y_d, M = .12Y, and T = 0.1Y.

a. What is the numerical value of the open economy multiplier? (5.5 points)

b. By how much would the equilibrium level of national income increase if government spending increased by $20 billion?

c. What would be the change in the level of imports if investment spending increased by $20 billion?

d. Suppose X – M = 0 in the initial equilibrium. If autonomous exports, X, increase by $10 billion (while all other exogenous variables are unchanged), what is the new equilibrium value of X – M?

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Expert Solution

Rahul Sunny answered 1 year ago

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