Consider two open economies, A and B, characterized by the equations on the right. The parameters m, and x, are the propensities to import and export. Assume that the real exchange rate is fixed at a value of 1 and treat foreign income, Y*, as fixed. Also assume that taxes are fixed and that government purchases are exogenous (i.e., decided by the government). We explore the effectiveness of changes in G under alternative assumptions about the propensity to import. Given this information, which of the two economies do you think is larger? O A. B OB. A OC. A and B are likely to be equally large. Suppose government purchases in each economy increase by one unit. (Assume the two economies do not trade with each other.) C = c₁ + c₁ (Y-T) 1 = do + d₁Y IM = m₁Y X=x₁Y* c₁+d, 0.8 in both A and B m, 0.3 in A; m, 0.4 in B Output in A will by Output in B will by Net exports in A will by Net exports in B will by ☐.

Consider two open economies, A and B, characterized by the equations on the right. The parameters m, and x, are the propensities to import and export. Assume that the real exchange rate is fixed at a value of 1 and treat foreign income, Y, as fixed. Also assume that taxes are fixed and that government purchases are exogenous (i.e., decided by the government). We explore the effectiveness of changes in G under alternative assumptions about the propensity to import. Given this information, which of the two economies do you think is larger? O A. B OB. A OC. A and B are likely to be equally large. Suppose government purchases in each economy increase by one unit. (Assume the two economies do not trade with each other.) C = c₁ + c₁ (Y-T) 1 = do + d₁Y IM = m₁Y X=x₁Y c₁+d, 0.8 in both A and B m, 0.3 in A; m, 0.4 in B Output in A will by Output in B will by Net exports in A will by Net exports in B will by ☐.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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