Aggregate expenditures (billions) Real GDP DI Aggregate Net exports billions) S
ID: 1154310 • Letter: A
Question
Aggregate expenditures (billions) Real GDP DI Aggregate Net exports billions) S 20 (billions) expenditures Exports Imports billions) (billions) billions) $100 $25 20 150 180 210 240 270 300 140 160 200 220 240 20, 20 20 20 (a) What is the equilibrium GDP for the private closed economy? (b) Including the international trade figures for exports and imports, calculate Net exports and Aggregate expenditures columns (display in table above). What is the new equilibrium GDP for the private open economy? (c) What will happen to equilibrium GDP if exports were $10 billion smaller and imports $20 billion greater at each level of GDP? (d) What is the size of the multiplier in this economy? (e) What do you think would happen to equilibrium GDP if the U.S. dollar appreciated relative to other currencies and tariffs were put on the import of steel and aluminum?Explanation / Answer
(a) In private closed economy, Aggregate expenditure (AE) = Real GDP (Y)
From given values, closed-economy equilibrium Y = AE = $120 billion
(b) Net exports (NX) = Exports - Imports = $(25 - 5) billion = $20 billion
Open-economy AE = Closed-economy AE + NX, computed as follows.
Open-economy equilibrium Y = Open-economy AE = $180 billion
c) New exports (X), imports (M), NX and Closed-economy AE are computed as follows.
New Open-economy equilibrium Y = New Open-economy AE = $90 billion
(d)
Change in NX = $(20 + 10) billion = $30 billion
Change in equilibrium Y = $(180 - 90) billion = $90 billion
Multiplier = Change in equilibrium Y / Change in NX = $90 billion / $30 billion = 3
NOTE: As per Chegg Answering Policy, 1st 4 parts are answered.
Y Closed-economy AE Exports Imports Net exports Open-economy AE ($Billion) ($Billion) ($Billion) ($Billion) ($Billion) ($Billion) 90 100 25 5 20 120 120 120 25 5 20 140 150 140 25 5 20 160 180 160 25 5 20 180 210 180 25 5 20 200 240 200 25 5 20 220 270 220 25 5 20 240 300 240 25 5 20 260