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.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter13: Open-economy Macroeconomics: Basic Concepts

Section: Chapter Questions

Problem 1CQQ

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