Give answer of only question d, e, f Consider an open economy characterized by the following equations:C = c,+e,(Y-7)%3DIM = m,YX = x,Y*The parameters m, and are the propensities to import and export. Assume that the realexchange rate is fixed at a value of 1 and treat foreign income, Y, as fixed. Al/so assume thattaxes are fixed and that government purchases are exogenous (i.e., decided by the government).We explore the effectiveness of changes in G under alternative assumptions about the propensity toimport.a. Write the equilibrium condition in the market for domestic goods and solve for Y.b. Suppose government purchases increase by one unit. What is the effect on output? (Assumethat 0 < m, < c, + d, <1, Explain why.)c. How do net exports change when government purchases increase by one unit?Now consider two economies, one with mi = 0.5 and the other with mi = 0.1. Each economy ischaracterized by (le, + d,) = 0.6,d. Suppose one of the economies is much larger than the other. Which economy do you expect tohave the larger value of m1? Explain.e. Calculate your answers to parts b and c for each economy by substituting the appropriateparameter values.f. In which economy will fiscal policy have a larger effect on output? In which economy will fiscalpolicy have a larger effect on net exports?

given Multipliers, openness, and fiscal policy Consider an open economy characterized by the…

Consider an open economy characterized by the following equations: C = c,+c,(Y-7) IM = m,Y The parameters ", and are the propensities to import and export. Assume that the real exchange rate is fixed at a value of 1 and treat foreign income, Y, as fixed. Al/so assume that taxes are fixed and that government purchases are exogenous (i.e., decided by the government). We explore the effectiveness of changes in G under alternative assumptions about the propensity to import.

Consider an open economy characterized by the following equations: C = c,+c,(Y-7) IM = m,Y The parameters ", and are the propensities to import and export. Assume that the real exchange rate is fixed at a value of 1 and treat foreign income, Y, as fixed. Al/so assume that taxes are fixed and that government purchases are exogenous (i.e., decided by the government). We explore the effectiveness of changes in G under alternative assumptions about the propensity to import.

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Give answer of only question d, e, f

Consider an open economy characterized by the following equations:
C = c,+e,(Y-7)
%3D
IM = m
,Y
X = x,Y*
The parameters m, and are the propensities to import and export. Assume that the real
exchange rate is fixed at a value of 1 and treat foreign income, Y, as fixed. Al/so assume that
taxes are fixed and that government purchases are exogenous (i.e., decided by the government).
We explore the effectiveness of changes in G under alternative assumptions about the propensity to
import.
a. Write the equilibrium condition in the market for domestic goods and solve for Y.
b. Suppose government purchases increase by one unit. What is the effect on output? (Assume
that 0 < m, < c, + d, <1, Explain why.)
c. How do net exports change when government purchases increase by one unit?
Now consider two economies, one with mi = 0.5 and the other with mi = 0.1. Each economy is
characterized by (le, + d,) = 0.6,
d. Suppose one of the economies is much larger than the other. Which economy do you expect to
have the larger value of m1? Explain.
e. Calculate your answers to parts b and c for each economy by substituting the appropriate
parameter values.
f. In which economy will fiscal policy have a larger effect on output? In which economy will fiscal
policy have a larger effect on net exports?

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