Question

The questions below are based on the following information, which relates to the Keynesian model for an open economy:

C = R600 million + 0.75Y

Z = R200 million + 0.45Y

T = 0.20Y

Where:

C = Consumption

Y = Income

Z = Imports

T = Tax

Additionally:

• Investment spending = R350 million
• Government spending = R500 million
• Exports = R350 million
• Full employment level of income = 3 000 million.

1.1Calculate the value of the marginal propensity to save.

1.2 Calculate the value of the multiplier for an open economy.

1.3Calculate the value of the multiplier for an open economy.

1.4Answer the following questions regarding equilibrium for this economy:

1.4.1 Calculate the equilibrium income for an open economy

1.4.2 Calculate the amount of tax collected at equilibrium and state show whether there is a budget deficit of surplus.

1.5Calculate the value of total imports at equilibrium.

Answer 1