Question

The data in the first two columns below are for a private closed economy. Use this table to answer the following questions.

Real GDP = DI (billions)	Aggregate expenditures (billions)	Exports (billions)	Imports (billions)	Net exports (billions)	Aggregate expenditures (billions)
$ 80	$100	$15	$5	$_____	$_____
120	130	15	5	_____	_____
160	160	15	5	_____	_____
200	190	15	5	_____	_____
240	220	15	5	_____	_____
280	250	15	5	_____	_____
320	280	15	5	_____	_____
360	310	15	5	_____	_____

a. What is the equilibrium GDP for the private closed economy?

b. Including the international trade figures for exports and imports, calculate net exports and determine the equilibrium GDP for a private open economy.

c. What will happen to equilibrium GDP if exports were $10 billion larger at each level of GDP?

d. What will happen to equilibrium GDP if exports remained at $15 billion, but imports rose to $15 billion?

e. What is the size of the multiplier in this economy?

Answer 1

a. Equilibrium is attained where real GDP = Aggregate expenditure = $160

b. Net Exports = 15 - 5 = 10 and Equilibrium GDP = 200 b

c. Equilibrium GDP increases to 240.

d. When imports = 15 which is equal to exports, net exports = 0 and economy will be as same as close economy. so, GDP will fell to 160 b