Question

# Honduras is a small open economy (an open economy is an economy that trades with other...

Honduras is a small open economy (an open economy is an economy that trades with other countries). Suppose Honduras imposes a strict limit on the number of imports entering Honduras. As a result in the fall of imports the ________ will ________ and equilibrium output will ________.

- 45-degree line; shift downward; increase

- 45-degree line; shift downward; decrease

- 45-degree line; shift upward; increase

- 45-degree line; shift upward; decrease

- planned expenditure curve (E); shift downward; increase

-planned expenditure curve (E); shift downward; decrease

- planned expenditure curve (E); shift upward; increase

- planned expenditure curve (E); shift upward; decrease

2)

Suppose the aggregate output of the Danish economy is characterized as follows.
Consumption: C = 85 + 0.8(Y-T)
Investment: I = 200
Government: G = 275
Taxes: T = 200
Net Exports: NX = -50

Given the information, the equilibrium level of CONSUMPTION (C) in Denmark is ____ .

Given the information, the equilibrium level of output  in Denmark is ____ .

Given the information, national savings in Denmark is ____ .

Given the information, the marginal propensity to consume (mpc) in Denmark is ____ .

1. As a result of fall in import the planned expenditure line will shifts upward and the equilibrium output increases.

Explanation: equilibrium is given at the intersection of 45°line and aggregate expenditure line. As with fall in import NX increases it shifts the expenditure line up and hence equilibrium shifts from e° to e1.

2.

C= 1325

Y= 1750

S=425 and MPC = 0.8

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