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Prove the foreign investment multiplier is equal to 1 all over mpm + mps (1/mpm+mps)
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- Prove that the open economy multiplier is the reciprocal of the sum of marginal propensity to save (MPS) and marginal propensity to import (MPMThe 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.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)?
- if the multplier in an economy is 2, a $10 billion increase in net exports willShow the derivation of the foreign trade multiplier and calculate the foreign trade multiplier in an economy with a consumption function of C = 60 + 0.4Y and an import function of M = M0 + 0.2Y?Following a tax cut by government, domestic investment will ________ and net exports will ________. increase; increase increase; decrease decrease; increase decrease; decrease
- A large open economy has desired national saving of Sd = 1200 + 1000rw, and desired national investment of Id = 1000 - 500rw. The foreign economy has desired national saving of = 1300 + 1000rw, and desired national investment of = 1800 - 500rw. Suppose the foreign country's government increases its spending by 300 and private saving does not change. Then in equilibrium, the foreign country has net exports equal to____Consider two economies, A and B. Economy A has a marginal propensity to consume of 0.9, a net tax rate of 0.3 and a marginal propensity to import of 0.3. Economy B has a marginal propensity to consume of 0.9, a net tax rate of 0.1 and a marginal propensity to import of 0.3. Suppose there is an increase in autonomous investment of $5 billion in each of these economies. Which of the following statements is true? Group of answer choices There is a larger decrease in real GDP in Economy A as a result of the change in autonomous investment. There is a larger increase in real GDP in Economy B as a result of the change in autonomous investment. There is a larger increase in real GDP in Economy A as a result of the change in autonomous investment. There is an equal effect on real GDP in Economies A and B as a result of the increase in autonomous investment. There is a larger decrease in real GDP in Economy B as a result of the change in autonomous investment.Assume a simple model with no government or foreign sector. If an increase in autonomous investment of 100 leads to an increase in consumption of 300, the size of the expenditure multiplier is
- Consider the following information about an economy. C=100+b(Y-50-0.25Y); I=50, G=50, X=10, M=5+0.1y, t=0.25Y, MPC=0.8 Find equilibrium national income Find the foreign trade multiplier What components are excluded in calculating national income and why? [ What is the effect of an increase in t of 0.3 on the equilibrium income and the multiplier?Assuming 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?the term 'crowding out' refers to the decrease in a. consumption expenditure from an increase in investment b. the real interest rate from a government budget deficit c. foreign investment due to high public investment d. private investment from a government budget deficit e. saving from an increase in disposable income
