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?

Expert Solution

Rahul Sunny answered 2 years ago

Given the following: Y= C + I + G. C= 50 + 0.8Yd I= 160 G=...

Given the following: Y= C + I + G. C= 50 + 0.8Yd I= 160 G= 150, T = 200 Determine the equilibrium level of output (Y). Calculate Yd, C, S. Calculate the expenditure\ tax multiplier. Now suppose that the potential GDP equals 1100, By how much would government spending\ tax need to change to close the gap?

2. Suppose you are given the IS-LM model below: (1) C = 120 + 0.8YD (2)...

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2. C = 50 + .8YD = 50 + .8(Y – T) I = 150...

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