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 Variables1. **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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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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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