5 A small open economy with fixed prices can be described by the income-expenditure model:Consumption:C= 700 + 0.8YD; where YD = disposable incomePlanned investment:Iplanned 800 - 600i, where i minterest rateTaxes:T- 420 + 0.06YTransfers:TR - 400 - 0.04YGovernment spending:G- 468Exports:X- 400 - 10EFC/DeImports:IM - 200 + 0.12Y + 30EFC/pCNOTE: YD - disposable income. Unless otherwise stated, interest rate, i, is held constant at 0.1 (i.e., it should be interpreted as 10%) and exchange rate, Erc/pc, is held constant at 10 (FC per DC).Part (a) Find the equilibrium levels of output and (government) budget balance.Part (b) Initially, the economy is in its equilibrium as shown in part (a). Recently, the domestic government raised import tariffs. As a result, autonomous imports change by 22 units. In addition, this change in trade policy will cause the interest rate tochange by 1 percentage points and the exchange rate to change by 0.2 FC per DC.Find the new equilibrium levels of output, planned investment, and budget balance.Answers:• For numerical answers, just enter the numbers (i.e., no unit of measurement, no comma).• For example, if profit - $5,125.6, just enter "-5125.6" in the answer box• No space between the negative sign and the number.• DO NOT enter "- $5125.6" or "- 5,125.6" or "profit = -5,125.6", etc.; otherwise, the system will mark you wrong & you won't receive marks.Part (a)Level of autonomous expenditure =(Keep your answer to 1 decimal place if needed)• For example, if the AE,lanned equation is AEplanned - 123 + 0.8Y, then enter 123 in the answer box.Output =(Keep your answer to 1 decimal place if needed)Government budget balance =(Keep your answer to 1 decimal place if needed)Part (b)New level of autonomous expenditure =(Keep your answer to 1 decimal place if needed).When the economy reaches its new equilibrium:• Output =(Keep your answer to 1 decimal place if needed)• Planned investment =(Keep your answer to 1 decimal place if needed)• Government budget balance =(Keep your answer to 1 decimal place if needed). Compared to part (a), what happens to the budget balance?(increase, decrease, does not change)

Aggregate Expenditure = Consumption + Planned Investment + Government Expenditure - Taxes +…

A small open economy with fixed prices can be described by the income-expenditure model: Consumption: C- 700 + 0.8YD: where YD - disposable income Planned investment: Iplanned" 800 - 600i, where i -interest rate Тахes: T- 420 + 0.06Y Transfers: TR - 400 - 0.04Y Government spending: G- 468 Еxports: X- 400 - 10E,rc/pc Imports: IM - 200 + 0.12Y + 30E.c/pc NOTE: YD - disposable income. Unless otherwise stated, interest rate, i, is held constant at 0.1 (i.e., it should be interpreted as 10%) and exchange rate, ErC/pc, is held constant at 10 (FC per DC). Part (a) Find the equilibrium levels of output and (government) budget balance. Part (b) Initially, the economy is in its equilibrium as shown in part (a). Recently, the domestic government raised import tariffs. As a result, autonomous imports change by 22 units. In addition, this change in trade policy will cause the interest rate to change by 1 percentage points and the exchange rate to change by 0.2 FC per DC. Find the new equilibrium levels of output, planned investment, and budget balance. Answers:

A small open economy with fixed prices can be described by the income-expenditure model: Consumption: C- 700 + 0.8YD: where YD - disposable income Planned investment: Iplanned" 800 - 600i, where i -interest rate Тахes: T- 420 + 0.06Y Transfers: TR - 400 - 0.04Y Government spending: G- 468 Еxports: X- 400 - 10E,rc/pc Imports: IM - 200 + 0.12Y + 30E.c/pc NOTE: YD - disposable income. Unless otherwise stated, interest rate, i, is held constant at 0.1 (i.e., it should be interpreted as 10%) and exchange rate, ErC/pc, is held constant at 10 (FC per DC). Part (a) Find the equilibrium levels of output and (government) budget balance. Part (b) Initially, the economy is in its equilibrium as shown in part (a). Recently, the domestic government raised import tariffs. As a result, autonomous imports change by 22 units. In addition, this change in trade policy will cause the interest rate to change by 1 percentage points and the exchange rate to change by 0.2 FC per DC. Find the new equilibrium levels of output, planned investment, and budget balance. Answers:

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section: Chapter Questions

Problem 4TY

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