You Are Given the Following Information About an Economy: C

question 33

Essay

You are given the following information about an economy: C = 200 + .75Yd; I = 50; G = 100; EX = 25; IM = .15Yd; and T = 60.
(a) What is the equilibrium level of income?
(b) At the equilibrium level of income is the economy running a trade deficit or trade surplus? What is the amount of the trade deficit or surplus?
(c) What is the open-economy multiplier?
(d) If government spending increases by 100, what will be the change in income? What is the new equilibrium level of income?
(e) At the new equilibrium level of income, what is the level of imports and exports?

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Definitions:

Private Good

A product that is excludable and rival in consumption, meaning its use is limited to the purchaser and it cannot be shared without diminishing availability to others.

Rivalry

Competition or contention between two or more parties for a goal that only one can attain.

Excludability

A characteristic of a good according to which it is possible to prevent people who have not paid for the good from consuming it.

Optimal Quantity

The quantity that maximizes a firm or individual's net benefit, often determined through cost-benefit analysis.