2. Imports and ExportsNow we allow for international trade. Use the following information from problem 1:C = 400 + (8/9)*DII= 300G= 800T= (1/2)*Y.Suppose that exports are constant at X = 300.Let imports be a fraction of real income: M = (1/9) * Y.a. Give intuition for why imports M are positively related to national income Y in the equationabove.b. Suppose that national income increases by $1. How much will spending on imports increase(the marginal propensity to import) in this case?c. Compute the equilibrium level of national income under international trade.d. Suppose that government spending increases by $120.i) Compute the new equilibrium national income.ii) Based on your numerical answer to (i), calculate the change in national income from aone dollar increase in government spending.iii) Derive the new fiscal multiplier from an increase in government spending using analgebraic equation. Compare to Problem 2.d.(ii). Compare to Problem 1.c.(v).e. Trade Representative: "In an open economy with international trade, government spending ismuch more effective at fighting recessions than in a closed economy." Evaluate.

Given: C=400+8/9 DI I=300 G=800 T=1/2 Y X=300 Note: Due to multiple subparts being posted, the first…

2. Imports and Exports Now we allow for international trade. Use the following information from problem 1: C= 400 + (8/9)*DI I= 300 G = 800 T=(1/2)*Y. Suppose that exports are constant at X = 300. Let imports be a fraction of real income: M = (1/9) * Y. a. Give intuition for why imports M are positively related to national income Y in the equation above. b. Suppose that national income increases by $1. How much will spending on imports increase (the marginal propensity to import) in this case? c. Compute the equilibrium level of national income under international trade.

2. Imports and Exports Now we allow for international trade. Use the following information from problem 1: C= 400 + (8/9)DI I= 300 G = 800 T=(1/2)Y. Suppose that exports are constant at X = 300. Let imports be a fraction of real income: M = (1/9) * Y. a. Give intuition for why imports M are positively related to national income Y in the equation above. b. Suppose that national income increases by $1. How much will spending on imports increase (the marginal propensity to import) in this case? c. Compute the equilibrium level of national income under international trade.

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter4: The Aggregate Economy

Section: Chapter Questions

Problem 5E

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