Question

The following is a model that describes the economy of Ghana with all values in (GHȼ million).

Y = C + I + G + X – M

C = 1200 + 0.9Yd Yd

Yd = Y – T

T = 200 + 0.1Y

I = 300

G = 1000

X = 600

M = 400 + 0.1Yd

(where Y is national income, C is consumption, G is government spending, X is export, M is import, Yd is disposable income and T is taxes).

Use the given information to answer the following questions.

a) Assume a closed economy without government activity, calculate the equilibrium national income.

b) Assume a closed economy with government activity, calculate the equilibrium national income.

c) Explain your result in (a) and (b).

For the rest of the questions, assume an open economy with government activity:

d) Calculate the economy’s equilibrium national income.

e) Will you agree whether opening up the economy to foreigners has been beneficial or not? Explain. (Hint difference between closed and open economy).

Answer 1