Consider the following Open Economy with the following parameters, in billions: Consumption (C) = 500+.75(YD). Personal Disposable Income (YD) = Y-T + TR Government Spending (G) = 800. Transfers (TR) = 400. Taxes (T) = (1/3)Y. Investment (I) = 400. Exports (X) = 200. Imports (IM) = 400. In this Economy, Equilibrium Income is. the Government Budget is and the Government Spending/Investment Multiplier is

Consider the following Open Economy with the following parameters, in billions: Consumption (C) = 500+.75(YD). Personal Disposable Income (YD) = Y-T + TR Government Spending (G) = 800. Transfers (TR) = 400. Taxes (T) = (1/3)Y. Investment (I) = 400. Exports (X) = 200. Imports (IM) = 400. In this Economy, Equilibrium Income is. the Government Budget is and the Government Spending/Investment Multiplier is

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter4: The Aggregate Economy

Section: Chapter Questions

Problem 5E

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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_________?
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)?
Consider the following equations for a small open economy C = 2500 + 0.85Yd; T = 700 + 0.25Y; G = 8000; TR = 800; I = 4000 + 0.2Y; M = 3000 + 0.25Y; X = 2000 Use the reduced form equation to compute equilibrium national income. Compute the values of disposable income, consumption expenditure, tax revenue, and net exports. Using a measure, you are familiar with, demonstrate if the economy is operating a balanced budget.
Given the following variables in the open economy aggregate expenditure model, autonomous consumption (C0) = 200, autonomous investment (I0) = 200, government spending (G0) = 100, export spending (X0) = 100, autonomous import spending (M0) = 100, taxes (TP) = 0, marginal propensity to consume (c1) = 0.8, marginal propensity to invest (i1) = 0.1, and marginal propensity to import (m1) = 0.15, a. Calculate the equilibrium level of income for the open economy aggregate expenditure model. b. Determine the value of the open economy expenditure multiplier. c. If there is an increase in autonomous import expenditure from 100 to 200 resulting from an increase in the currency exchange rate, calculate the new equilibrium level of income and the value of the multiplier. d. Compared with the original equilibrium in part a, if the government decides to impose taxes (TP) of 100, calculate the new equilibrium level of income. e. Find the value of the multiplier and the corresponding equilibrium…
Which of the following is a true statement describing expansionary fiscal policy’s impact in open and closed economies? Select one: a. Expansionary fiscal policy crowds out only investment spending and purchases of consumer durables in an open economy. b. Expansionary fiscal policy crowds out investment spending, purchases of consumer durables and net exports in an open economy. c. Expansionary fiscal policy crowds out investment spending, purchases of consumer durables and net exports in a closed economy. d. Expansionary fiscal policy does not crowd out investment spending and purchases of consumer durables in an open economy.
Given the following variables in the open economy aggregate expenditure model, autonomous consumption (C0) = 200, autonomous investment (I0) = 200, government spending (G0) = 100, export spending (X0) = 100, autonomous import spending (M0) = 100, taxes (TP) = 0, marginalpropensity to consume (c1) = 0.8, marginal propensity to invest (i1) = 0.1, and marginal propensity to import (m1) = 0.15, a. Compared with the original equilibrium in part a, if the government decides to impose taxes (TP) of 100, calculate the new equilibrium level of income. b. Find the value of the multiplier and the corresponding equilibrium income if tax is specified as ?? = 100 + 0.1?. Hint: Remember that consumption has an autonomous component and is a function of disposable income, Yd, where Yd = Y – TP
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. 120
The equilibrium condition for GDP in an open economy is: Y = C + I + G + (X – M) GDP can be eitherspent, saved, or taxed away , so it is necessary that: Y = Substituting the second equation into the first equation and rearranging yields: X – M = The fundamental equation shows that an increase in the taxes will cause the budget deficit to , which should the trade deficit.
Using the information below for the open economy model,a) Solve the equilibrium output step-by-step.b) Solve the trade balance step-by-step.c) Solve the fiscal balance step-by-step.Autonomous consumption → CA= 110Marginal propensity to consume → cY = 0.5Lump-sum tax collection → T = 50Income tax rate → t = 0.2Investment expenditure → I = 100Government expenditure → G = 100Exports → X = 100Marginal propensity to import → m = 0.3
In a small open economy, if the budget deficit increases, then which of the following is likely to be accurate? a. If private saving and domestic investment stay the same, then net exports increase. b. If private saving stays the same and net exports increase, then domestic investment decreases. c. If private saving decreases and domestic investment stays the same, then net exports increase. d. If private saving increases and net exports decrease, then domestic investment decreases.
Consider the following hypothetical open economy. According to the expenditure approach, for this economy, Y = C + I + G + NX. Additionally, for the year 2020 the economy is characterized as follows: National saving is 30 percent of GDP Investment is 20 percent of GDP Net capital outflow 1 trillion dollars In this economy in 2020, what is the level of GDP or Y? Please report your answer in trillions of dollars.
Consider the imaginary small country of Kootenay. Assume that Kootenay is closed to trade, so that its net exports are equal to zero. Suppose that the economy is described by 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