Answer the Questions Below Using the Following Information About the Economy

question 61

Essay

Answer the questions below using the following information about the economy of Tumania. Hint: Don't forget about taxes!
C = 100 + .8(Yd)
I = 100
G = 75
T = 60
EX = 50
IM = 40 + .15(Yd)
(a) Determine the equilibrium level of GDP.
(b) What is the government budget deficit?
(c) At this level of equilibrium is there a trade deficit or surplus? What is the amount of deficit or surplus?
(d) What is the open-economy multiplier in this economy?
(e) If government spending increases by 15, what happens to equilibrium GDP? Does the balance of trade situation change when government spending increases?
(f) The country of Tumania experiences a 5% appreciation of its currency. Assume that for every 1% increase in its currency's value, imports increase by 6 units and exports fall by 3 units. How does this currency appreciation affect GDP?

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Definitions:

Remodeling

The process of improving or updating the structure, layout, or appearance of an existing building or space.

Marginal Costs

The expense incurred from the manufacture of an extra single product or service unit.

Total Cost

All expenditures related to the manufacture of goods or provision of services, integrating both unchanging and dynamic costs.

Total Variable Cost

the overall cost that varies directly with the level of production or output.