Book: Introductory Macroeconomics
Chapter: 6. Open Economy Macroeconomics
Subject: Social Science - Class 12th
Q. No. 13 of Exercises
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Suppose C = 40 + 0.8Y D, T = 50, I = 60, G = 40, X = 90, M = 50 + 0.05Y (a) Find equilibrium income. (b) Find the net export balance at equilibrium income (c) What happens to equilibrium income and the net export balance when the government purchases increase from 40 and 50?
Given
C = 40 + 0.8YD
T = 50
I = 60
G = 40
X = 90
M = 50 + 0.05Y
Equilibrium Income (Y) = A / 1 – c + m
A = C – cT + I + G + X - M
Y = C – cT + I + G + X - M/1 – c + m
= 40 – (0.8 x 50) + 60 + 40 + 90 - 50 / 1 – 0.8 + 0.05
= 560
Net exports at equilibrium income
NX = X - M – mY
= 90 – 50 – (0.05 x 560)
= 12
When G increase from 40 to 50, Equilibrium income (Y)
Y = C – cT + I + G + X - M/1 – c + m
= 40 – (0.8 x 50) + 60 + 50 + 90 - 50 / 1 – 0.8 + 0.05
= 600
Net export balance at equilibrium income
NX = X - (M + mY)
= 90-50-0.05x600
= 10