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October 22, 2014

October 22, 2014

Posted by **britney** on Friday, November 3, 2006 at 10:08am.

(1)real domestic output (GDP=DI) in billions

$200

$250

$300

$350

$400

$450

$500

$550

(2)aggregate expenditures private closed economy billions

$240

$280

$320

$360

$400

$440

$480

$520

(3)exports billions

$20

$20

$20

$20

$20

$20

$20

$20

(4)imports billions

$30

$30

$30

$30

$30

$30

$30

$30

(5)net exports private economy

??

??

??

??

??

??

??

??

(6)aggregate expenditures open,billions

??

??

??

??

??

??

??

??

??

the 1 question is use columns 1and 2 to determine the equilibrium GDP for this hypothetical economy.

2.fill in columns 5 and 6 to dtermine the equilibrium GDP for the open economy.

3. Given the original $20 billion level of exports, what would be the equilibrium GDP if imports were $10 billion greter at each level of GDP?

4. What is the multiplier in this example?

I am confused with your tables. I hope I am interpreting them correctly

I presume your first bank of numbers, labled GDP=DI are various possible levels of total output. In this example GDP=DI. Your second bank of number are levels of aggregate spending (Consumption) associated with each of these levels of disposable income. So, at 200 GDP, consumption is 240 -- meaning dis-savings is -40.

I presume there are no desired investments in this example. So, equilibrium occurs when Consumption = disposable income. $400

Note that when income rises by $50, consumption rises by 40. This means the MPC=40/50 = .8, which means MPS=.2. The multiplier is 1/mps = 1/.2 = 5.0

Now layer in the fact you have $10 net imports (-10 net exports). Using the multiplier, GDP should fall by 5*10 = $50

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