Question

An open economy is described by the following system of
macroeconomic equations, in which all

macroeconomic aggregates are measured in billions of Namibian
dollars, N$.

Y = C + I + G + X – M

C = 160 + 0.6Yd

T = 150 + 0.25Y

I = 150

G = 150

E = 300

M = 50 + 0.1Y, Yf = 1500

Where: Y is domestic income

Yd is private disposable income

C is aggregate consumption spending

T is government tax revenue

Page 14 of 15

I is investment spending

G is government spending

E represents exports

M represents imports of goods and services.

Yf is full employment income

(a) (i) Determine the equilibrium level of income /output.
(4)

(b) (ii) Determine the surplus/deficit in the government budget at
equilibrium. (4)

(iii) Determine trade balance at equilibrium. (4)

(c) Determine by how much government spending has to be increased
in order to achieve full

employment. How does this change affect the budget balance and the
trade balance? (An open economy is described by the following
system of macroeconomic equations, in which all

macroeconomic aggregates are measured in billions of Namibian
dollars, N$.

Y = C + I + G + X – M

C = 160 + 0.6Yd

T = 150 + 0.25Y

I = 150

G = 150

E = 300

M = 50 + 0.1Y, Yf = 1500

Where: Y is domestic income

Yd is private disposable income

C is aggregate consumption spending

T is government tax revenue

Page 14 of 15

I is investment spending

G is government spending

E represents exports

M represents imports of goods and services.

Yf is full employment income

(a) (i) Determine the equilibrium level of income /output.
(4)

(b) (ii) Determine the surplus/deficit in the government budget at
equilibrium. (4)

(iii) Determine trade balance at equilibrium. (4)

(c) Determine by how much government spending has to be increased
in order to achieve full

employment. How does this change affect the budget balance and the
trade balance? (An open economy is described by the following
system of macroeconomic equations, in which all

macroeconomic aggregates are measured in billions of Namibian
dollars, N$.

Y = C + I + G + X – M

C = 160 + 0.6Yd

T = 150 + 0.25Y

I = 150

G = 150

E = 300

M = 50 + 0.1Y, Yf = 1500

Where: Y is domestic income

Yd is private disposable income

C is aggregate consumption spending

T is government tax revenue

Page 14 of 15

I is investment spending

G is government spending

E represents exports

M represents imports of goods and services.

Yf is full employment income

(a) (i) Determine the equilibrium level of income /output.
(4)

(b) (ii) Determine the surplus/deficit in the government budget at
equilibrium. (4)

(iii) Determine trade balance at equilibrium. (4)

(c) Determine by how much government spending has to be increased
in order to achieve full

employment. How does this change affect the budget balance and the
trade balance? (An open economy is described by the following
system of macroeconomic equations, in which all

macroeconomic aggregates are measured in billions of Namibian
dollars, N$.

Y = C + I + G + X – M

C = 160 + 0.6Yd

T = 150 + 0.25Y

I = 150

G = 150

E = 300

M = 50 + 0.1Y, Yf = 1500

Where: Y is domestic income

Yd is private disposable income

C is aggregate consumption spending

T is government tax revenue

Page 14 of 15

I is investment spending

G is government spending

E represents exports

M represents imports of goods and services.

Yf is full employment income

(a) (i) Determine the equilibrium level of income /output.
(4)

(b) (ii) Determine the surplus/deficit in the government budget at
equilibrium. (4)

(iii) Determine trade balance at equilibrium. (4)

(c) Determine by how much government spending has to be increased
in order to achieve full

employment. How does this change affect the budget balance and the
trade balance? (

Answer #1

Use the following macroeconomic model to answer the questions
from. You must show your work of estimation to obtain the
credits.
C = 50 + 0.80Yd; C = consumption function; Yd = disposable
income (Y-T)
T = 30; T = Tax revenue
I = 100; I = Investment
G = 150; G = Government expenditure
Yf = Full Employment RGDP (Potential RGDP) = 1600
1. Estimate the equilibrium GDP level (income).
2. At the equilibrium level of output you estimated...

In an open economy:
C = 400 + 0.75Yd
T = 0.2Y
I = 600
G = 1000
X = 500
Z = 0.1Y
a.Calculate national income when the economy is at
equilibrium. Use the injection-leakage approach to graph your
results.
b.Full employment is achieved when income is 5500. How
much should government expenditure increase to achieve full
employment?
c.At full employment, what is the (i) budget? (ii)
trade balance?
d.Based on your answers in (c), is it advisable for...

2. Suppose an inflationary economy can be described by the
following equations representing the goods and money markets:
C = 20 + 0.7Yd
M = 0.4Yd
I = 70 – 0.1r
T = 0.1Y
G = 100
X = 20
Ld = 389 + 0.7Y – 0.6r
Ls = 145
where G represents government expenditure, M is imports, X is
exports, Y is national income, Yd is disposable income, T is
government taxes (net of transfer payments), I is investment,...

IS-LM Model (Closed Economy)
The following equations describe a small open economy.
[Figures are in millions of dollars; interest rate (i) is in
percent]. Assume that the price level is fixed.
Goods Market
Money
Market
C = 250 +
0.8YD
L = 0.25Y – 62.5i
YD = Y + TR –
T
Ms/P = 250
T = 100 + 0.25Y
I = 300 – 50i
G = 350; TR = 150
Goods market equilibrium condition: Y = C + I...

A small open economy is described by the following equations: C
= 50 + .75(Y - T)
I = 200 - 20i
NX = 200 - 50E
M/P = Y - 40i
G = 200
T = 200
M = 3000
P=3
i* = 5
b. Assume a floating exchange rate and constant expectations.
Calculate what happens to the exchange rate, the level of income,
net exports, and the money supply if the government increases its
spending by 50. Use...

Suppose the following aggregate expenditure model describes the
US economy:
C = 1 + (8/9)Yd T = (1/4)Y I = 2 G = 4 X = 3 IM = (1/3)Y where C
is consumption, Yd is disposable income, T is taxes, Y is national
income, I is investment, G is government spending, X is exports,
and IM is imports, all in trillions $US.
(a) Derive a numerical expression for aggregate expenditure (AE)
as a function of Y. Calculate the equilibrium...

Use the following macroeconomic model structure to answer the
questions followed. Please note that you must show your work of
estimations for these numerical multiple-choice questions for
gradable credit. Without showing your works of estimation, your
answers won’t be credible for take-home exam. 8 pts
C = 300 + 0.8Yd; C = consumption function; Yd (Y-T) = disposable
income I = 200; I = Investment
G = 400; G = Government expenditure
T = 200; T = Tax revenue
Also...

The consumption function for a closed economy with a government
sector is:
C = $2 trillion + .6Yd, where Yd =
disposable income = Y – T, and
T = lump sum taxes = $2 trillion
Additionally, planned investment, I, is $1.5 trillion and
government spending G, is
$2.5 trillion.
Find Y* (equilibrium GDP). Find C and S. Find the size of the
multiplier.
Assume the Y* you found above is below the full employment
level of Y,...

1. Suppose the United States economy is represented by the
following equations: Z= C + I + G , C = 500 + 0.5Yd, Yd = Y − T T =
600, I = 300, G = 2000, Where, Z is demand for goods and services,
Yd is disposable income, T is taxes, I is investment and G is
government spending. Y is income/production. (a) Assume that the
economy is in equilibrium. What does it mean in terms of the...

Consider the following model of an open economy:
C = 14000 + 0.9YD -
45000i
YD = Y - T
I = 7000 - 20000i
M = 0
G = 7800
X = 1800
where Y is income, C is consumption,
YD is disposable income, i is the real
interest rate,G is government spending, T is tax,
I is investment, M is imports, and X is
exports.
What is the marginal propensity to save? (1
MARK)
Explain the intuition behind...

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