C= 40 + 0.75 (Y-T), I-80, G=50, and T=60 Imports and exports are given by: IM =0.25Y and X-0.3Y* Foreign income (Y*) =700 a) Solve for equilibrium output in the domestic economy. (10 points) b) Solve for the trade balance. Does the country have a trade surplus or deficit? How much? (5) c) Draw representative graphs of the goods market and net-exports. Draw your graphs to illustrate the trade balance at the equilibrium level of output. (10) d) What happens to equilibrium output and the trade balance if government expenditures increase to 100? Show the impact of this change on the graphs that you drew in part c. (10)

C= 40 + 0.75 (Y-T), I-80, G=50, and T=60 Imports and exports are given by: IM =0.25Y and X-0.3Y* Foreign income (Y*) =700 a) Solve for equilibrium output in the domestic economy. (10 points) b) Solve for the trade balance. Does the country have a trade surplus or deficit? How much? (5) c) Draw representative graphs of the goods market and net-exports. Draw your graphs to illustrate the trade balance at the equilibrium level of output. (10) d) What happens to equilibrium output and the trade balance if government expenditures increase to 100? Show the impact of this change on the graphs that you drew in part c. (10)

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter4: The Aggregate Economy

Section: Chapter Questions

Problem 5E

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