) Discuss and determine the saving function, the multiplier, the equilibrium level of income and the trade balance at the equilibrium level of income.

Consider an open economy without a government sector.

Consider an open economy without a government sector.

Question
Question 3

(a) Consider an open economy without a government sector
. It has the components of

aggregate spending as follows:

 C = 120 + 0
.8Y

 M = 60

 I = 500

 X = 200

 C is consumption, Y is income, M is import, I is investment and X is export
.

(i

Consider an open economy without a government sector.

Consider an open economy without a government sector.

Question
Question 3

(a) Consider an open economy without a government sector
. It has the components of

aggregate spending as follows:

 C = 120 + 0
.8Y

 M = 60

 I = 500

 X = 200

 C is consumption, Y is income, M is import, I is investment and X is export
.

(i) Discuss and determine the saving function, the multiplier, the equilibrium

level of income and the trade balance at the equilibrium level of income
.

(5 marks)

(ii) Suppose import now becomes positively related to output as M = 60 + 0
.05Y
.

What is the new multiplier, the new equilibrium level of income and the new

trade balance at this equilibrium level of income? Discuss
.

(5 marks)

Consider an open economy without a government sector.

(5 marks)
(ii) Suppose import now becomes positively related to output as M = 60 + 0.05Y.
What is the new multiplier, the new equilibrium level of income and the new
trade balance at this equilibrium level of income? Discuss.
(5 marks)

Consider an open economy without a government sector.

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