Assume that the foreign economy is characterized by the same equations as the domestic economy (with asterisks reversed). Use the two sets of equations to solve for the equilibrium output of each country. (Hint: Use the equations for the foreign economy to solve for Y* as a function of Y and substitute this solution for Y* in part (a).) What is the multiplier for each country now? Why is it different from the open economy multiplier in p
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Assume that the foreign economy is characterized by the same equations as the domestic economy (with asterisks reversed). Use the two sets of equations to solve for the equilibrium output of each country. (Hint: Use the equations for the foreign economy to solve for Y* as a function of Y and substitute this solution for Y* in part (a).) What is the multiplier for each country now? Why is it different from the open economy multiplier in part (a)?
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- Consider a small economy that is closed to trade, so that its net exports are zero. Suppose that the economy has the following consumption function, where C is consumption, Y is income (real GDP), IP is planned investment, G is government purchases, and T is taxes:C = $40 billion+0.5×(Y – T) Suppose G=$115 billion, IP=$50 billion, and T=$10 billion.Given the consumption function and the fact that, in a closed economy, planned expenditure can be calculated as Y=C+IP+G , the equilibrium income level is$ billion.Suppose that government purchases are increased by $100 billion. The new equilibrium level of income will be equal to$ billion.Based on the effect of the change in government purchases on equilibrium income, you can tell that this economy's multiplier is equal to_________?The transfer payments multiplier is ________ than the government purchases multiplier because some portion of the transfer payments will be saved by households and not spent, and some portion will be spent on ________. smaller; imported goods smaller; local services. larger; imported goods. larger; local services.The following question relates only to the equilibrium in the goods market IN A CLOSED ECONOMY and asks you to carry out a graphical analysis using both the Keynesian cross diagram together with the IS-MP diagram. >>) Suppose after the government has implemented the reduction in taxation that the central bank wants to keep the level of investment at the same level as before the tax reduction. How can the central bank intervene in the market to achieve this goal? Explain and illustrate graphically how the central bank can keep investment at the same level as before. Is there any additional impact of the central bank intervention on output, consumption and interest rates? If so what is the impact?
- Use the diagram to answer the question which one of the following will increase the size of the multiplier? A. an increase in the level of net exports B. An increase in the marginal propensity to consume C. an increase in the marginal propensity to save D. a reduction in the level of government spendingProve that the open economy multiplier is the reciprocal of the sum of marginal propensity to save (MPS) and marginal propensity to import (MPMAssuming the economy is operating below its potential output, what is the impact of an increase in net exports on real GDP ? Why is it difficult, if not impossible, for a country to boost its net exports by increasing its tariffs during a global recession?
- Consider a hypothetical economy where there are no taxes and no international trade. Households spend $0.60 of each additional dollar they earn and save the remaining $0.40. If there are no taxes and no international trade, the oversimplified multiplier for this economy is __________. Suppose investment spending in this economy increases by $250 billion. The increase in investment will lead to an increase in income, generating an increase in consumption that increases income yet again, and so on. Fill in the following table to show the impact of the change in investment spending on the first two rounds of consumption spending and, eventually, on total output and income. Now consider a more realistic case. Specifically, assume that the government in our hypothetical economy collects income taxes. In this case, the multiplier will be ______ (options: the same as, smaller than, larger than) the oversimplified multiplier you found earlier. Suppose that the price level in our…For the goods market of an open economy to be in equilibrium, the interest rate must be at 2% when GDP equals 120. We also know the following about consumption (C), investment (1), fiscal policy (taxes T and government expenditures G), imports (M) and exports (X) of the country: C = 20 + b*Y_{D} I = 44 T = 60 G = 22 M = 16 X = 32 where b is the marginal propensity to consume and Yo is net disposable income. What is the value of total consumption? Select one: a. 18 b. 20 C. 38 d. 120Explain why the multiplier in an open economy is different from the multiplier in a closed economy.
- Can you help me this question Explain the short-run impact upon net exports and GDP of the following in the multiplier model, using Table 28-1 where possible: An increase in investment (I ) of $100 billion A decrease in government purchases (G) of $50 billion An increase in foreign output which increased exports by $10 billion A depreciation of the exchange rate that raised exports by $30 billion and lowered imports by $20 billion at every level of GDPConsider the following model of an economy with no international trade, and in which the price level is fixed: C = 40 + (8/9)∙DI I = 30 G = 30 Taxes = (1/8)∙GDP where C is consumption demand, DI is disposable income, I is planned investment, G is government purchases, and all whole numbers are in billions of dollars. Determine the equilibrium level of production (GDP) in this economy (show your work), and draw this equilibrium situation on a graph. Use the multiplier to determine the change in equilibrium GDP that would result from an exogenous 16 billion dollar increase of government purchases. Then determine…Suppose an economy is represented by the following equations. Consumption function C = 300 + 0.8Yd Planned investment I = 400 Government spending G = 500 Exports EX = 200 Imports IM = 0.1Yd Autonomous Taxes T = 500 Marginal Tax Rate t=0.25 Planned aggregate expenditure AE = C + I + G + (EX - IM) By using the above information calculate the equilibrium level of income for this economy and explain how multiplier changes when we have an open economy