Given the following variables in the open economy aggregate expenditure model, autonomous consumption (C 0) 200, autonomous investment (10) = 200, government spending (GO) = 100, export spending (X0) = 100, autonomous import spending (MO) = 100, taxes (TP) = 0, marginal propensity to consume (c1) = 0.8, marginal propensity to invest (i1) = 0.1, and marginal propensity to import (m1) = 0.15, a. Calculate the equilibrium level of income for the open economy aggregate expenditure model. b. Determine the value of the open economy expenditure multiplier. c. If there is an increase in autonomous import expenditure from 100 to 200 resulting from an increase in the currency exchange rate, calculate the new equilibrium level of income and the value of the multiplier. d. Compared with the original equilibrium in part a, if the government decides to impose taxes (TP) of 100, calculate the new equilibrium level of income. e. Find the value of the multiplier and the corresponding equilibrium income if tax is specified as 100+ 0.1 Hint: Remember that consumption has an autonomous component and is a function of disposable income, Yd, where Yd = Y TP.
Given the following variables in the open economy aggregate expenditure model, autonomous consumption (C 0) 200, autonomous investment (10) = 200, government spending (GO) = 100, export spending (X0) = 100, autonomous import spending (MO) = 100, taxes (TP) = 0, marginal propensity to consume (c1) = 0.8, marginal propensity to invest (i1) = 0.1, and marginal propensity to import (m1) = 0.15, a. Calculate the equilibrium level of income for the open economy aggregate expenditure model. b. Determine the value of the open economy expenditure multiplier. c. If there is an increase in autonomous import expenditure from 100 to 200 resulting from an increase in the currency exchange rate, calculate the new equilibrium level of income and the value of the multiplier. d. Compared with the original equilibrium in part a, if the government decides to impose taxes (TP) of 100, calculate the new equilibrium level of income. e. Find the value of the multiplier and the corresponding equilibrium income if tax is specified as 100+ 0.1 Hint: Remember that consumption has an autonomous component and is a function of disposable income, Yd, where Yd = Y TP.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Given the following variables in the open economy aggregate expenditure model, autonomous consumption (C
0) 200, autonomous investment (10) = 200, government spending (GO) = 100, export spending (X0) = 100,
autonomous import spending (MO) = 100, taxes (TP) = 0, marginal propensity to consume (c1) = 0.8, marginal
propensity to invest (i1) = 0.1, and marginal propensity to import (m1) = 0.15, a. Calculate the equilibrium level of
income for the open economy aggregate expenditure model. b. Determine the value of the open economy expenditure
multiplier. c. If there is an increase in autonomous import expenditure from 100 to 200 resulting from an increase in the
currency exchange rate, calculate the new equilibrium level of income and the value of the multiplier. d. Compared with
the original equilibrium in part a, if the government decides to impose taxes (TP) of 100, calculate the new equilibrium
level of income. e. Find the value of the multiplier and the corresponding equilibrium income if tax is specified as
100+ 0.1 Hint: Remember that consumption has an autonomous component and is a function of disposable
income, Yd, where Yd = Y TP.
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