Y =C+I+G+NX Y = 6,000 G = 1,200 T =1,000 C = 250+0.75(Y –T) 1 = 1,000 – 100r (Income Identity) (Income) (Government expenditure) (Тах) (Consumption expenditure function (Investment function) (Net exports function) (Interest rate) NX = 400 – 400ɛ r=r* =5 (a) Solve for (1) The National saving (ii) The trade baance (iii) The equilibrium exchange rate.
Y =C+I+G+NX Y = 6,000 G = 1,200 T =1,000 C = 250+0.75(Y –T) 1 = 1,000 – 100r (Income Identity) (Income) (Government expenditure) (Тах) (Consumption expenditure function (Investment function) (Net exports function) (Interest rate) NX = 400 – 400ɛ r=r* =5 (a) Solve for (1) The National saving (ii) The trade baance (iii) The equilibrium exchange rate.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Suppose Ghana’s economy is described by the following equations:
![**Economic Analysis of Ghana's Market Conditions**
### Given Identities and Functions
- \( Y = C + I + G + NX \) *(Income Identity)*
- \( Y = 6,000 \) *(Income)*
- \( G = 1,200 \) *(Government expenditure)*
- \( T = 1,000 \) *(Tax)*
- \( C = 250 + 0.75(Y - T) \) *(Consumption expenditure function)*
- \( I = 1,000 - 100r \) *(Investment function)*
- \( NX = 400 - 400e \) *(Net exports function)*
- \( r = r^* = 5 \) *(Interest rate)*
### Tasks
#### (a) Solve for:
**(i) The National Saving**
**(ii) The Trade Balance**
**(iii) The Equilibrium Exchange Rate**
**(iv) Based on your answer in (iii) would you describe Ghana as a net borrower or a net lender and why?**
#### (b) Clearly explain the effect on investment and trade balance in a small open economy like Ghana if most foreign governments decide to embark on fiscal expansion.
#### (c) With the aid of a diagram, explain the effect on saving and trade balance in a small economy like Ghana if the government embarks on fiscal expansion.
#### (d) Analyse the effect on interest rate, investment, and trade balance in a small open economy like Ghana if foreign governments in North America, Australia, Asia, and the European Union (EU) embark on expansionary fiscal policy.
### Detailed Explanation of Given Functions and Variables
1. **Income Identity (Y = C + I + G + NX)**:
- This equation represents the aggregate demand (AD) in an open economy where:
- \( Y \) is the national income or Gross Domestic Product (GDP).
- \( C \) is the consumption expenditure.
- \( I \) is the investment expenditure.
- \( G \) is the government expenditure.
- \( NX \) is the net exports (exports minus imports).
2. **Consumption Expenditure Function (\( C = 250 + 0.75(Y - T) \)**):
- This function indicates the relationship between consumption and income.
- \( 250 \) is the autonomous consumption.
- \( 0.75 \) is the marginal](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F65e73232-57a7-48a2-9fe1-7eeb67aea2e1%2Fd50ca7be-033f-4de7-abbe-d666310feee5%2Fmpo5y5.png&w=3840&q=75)
Transcribed Image Text:**Economic Analysis of Ghana's Market Conditions**
### Given Identities and Functions
- \( Y = C + I + G + NX \) *(Income Identity)*
- \( Y = 6,000 \) *(Income)*
- \( G = 1,200 \) *(Government expenditure)*
- \( T = 1,000 \) *(Tax)*
- \( C = 250 + 0.75(Y - T) \) *(Consumption expenditure function)*
- \( I = 1,000 - 100r \) *(Investment function)*
- \( NX = 400 - 400e \) *(Net exports function)*
- \( r = r^* = 5 \) *(Interest rate)*
### Tasks
#### (a) Solve for:
**(i) The National Saving**
**(ii) The Trade Balance**
**(iii) The Equilibrium Exchange Rate**
**(iv) Based on your answer in (iii) would you describe Ghana as a net borrower or a net lender and why?**
#### (b) Clearly explain the effect on investment and trade balance in a small open economy like Ghana if most foreign governments decide to embark on fiscal expansion.
#### (c) With the aid of a diagram, explain the effect on saving and trade balance in a small economy like Ghana if the government embarks on fiscal expansion.
#### (d) Analyse the effect on interest rate, investment, and trade balance in a small open economy like Ghana if foreign governments in North America, Australia, Asia, and the European Union (EU) embark on expansionary fiscal policy.
### Detailed Explanation of Given Functions and Variables
1. **Income Identity (Y = C + I + G + NX)**:
- This equation represents the aggregate demand (AD) in an open economy where:
- \( Y \) is the national income or Gross Domestic Product (GDP).
- \( C \) is the consumption expenditure.
- \( I \) is the investment expenditure.
- \( G \) is the government expenditure.
- \( NX \) is the net exports (exports minus imports).
2. **Consumption Expenditure Function (\( C = 250 + 0.75(Y - T) \)**):
- This function indicates the relationship between consumption and income.
- \( 250 \) is the autonomous consumption.
- \( 0.75 \) is the marginal
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