Question

Consider an economy which is given by the following: ? = 8 0 + 3/4 ?...

Consider an economy which is given by the following:

? = 8 0 + 3/4 ? ?

? = 60
?? = 0.05??

? = 49

? = 20

?? = 20

  1. (i) Calculate the equilibrium level of real GDP for this economy. What is the size of the government deficit? What is the size of the current account balance?

  2. (ii) If government spending increase to 75, what happens to equilibrium output and imports?

  3. (iii) Supposeaquotaisimposedwhichlimitsimportsto 25. How do your answers to parts (i) and (ii) change with this quota?

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