Question

1. Use the following information about the economy of Argentina to answer the below question

2011 GDP - $460 billion
2012 GDP - $513 billion

2011 Consumption - $$477 billion
2012 Consumption - $529 billion

What is the size of the simple spending multiplier? (Assume no taxes or transfers.)

2. Use the following information about the economy of Argentina in 2018 to answer the below question

2018 GDP - $689 billion

2018 Taxes - $117 billion
2018 Investment - $345 billion
2018 Government Spending - $144 billion
2018 Consumption - $454 billion

What was the value of net exports in 2018?

Answer 1

1)

Marginal Propensity to consume(MPC) = Change in consumption/Change in GDP

=> Marginal Propensity to consume(MPC) = (529 billion - 477 billion)/(513 billion - 460 billion) = 0.98(approx)

Thus Multiplier = 1/(1 - MPC) = 1/(1 - 0.98) = 50

Hence, Multiplier = 50

2)

At equilibrium we have Y = C + I + G + NX where

Y = GDP = $689 billion, I = Investment = $345 billion, G = Government Spending = $144 billion, C = Consumption = $454 billion and NX = net exports

=> NX = Y - C - G - I

=> NX = 689 billion - 454 billion - 144 billion - 345 billion = -254 billion

Hence, Net Exports = -$254 billion