Answered: 3. An economy shows the following…

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter4: Estimating Demand

Section: Chapter Questions

Problem 6E

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3. An economy shows the following features
Consumption, C = 50 + 0.9Yd
Tax Revenue, T = 100
Investment, I = 150 – 5i
Government Expenditure, G = 100
Money demand, L = 0.2Y – 10i
Money Supply, M = 100
Exports, X = 20
Imports, M = 10 + 0.1Y
N/B
Yd is the disposable income
Required,
(a) Obtain the IS and LM equations of the economy
(b) Find the equilibrium income and rate of interest
(c) Find the balance of trade

Definition Definition Difference in value of a country's net exports and net imports for goods and services in a given period. A positive balance of trade is called a surplus and coincides with more net cash inflows into a country; a negative balance of trade deficit is a deficit and results in net cash outflows. A balance of trade surplus or deficit doesn't necessarily indicate a positive or negative situation for a country.

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