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Consider two open economies, A and B, characterized by the equations on the right. The parameters m, and x, are the propensities to import and export. Assume that the real exchange rate is fixed at a value of 1 and treat foreign income, Y*, as fixed. Also assume that taxes are fixed and that government purchases are exogenous (i.e., decided by the government). We explore the effectiveness of changes in G under alternative assumptions about the propensity to import. Given this information, which of the two economies do you think is larger? O A. B OB. A OC. A and B are likely to be equally large. Suppose government purchases in each economy increase by one unit. (Assume the two economies do not trade with each other.) C = c₁ + c₁ (Y-T) 1 = do + d₁Y IM = m₁Y X=x₁Y* c₁+d, 0.8 in both A and B m, 0.3 in A; m, 0.4 in B Output in A will by Output in B will by Net exports in A will by Net exports in B will by ☐.

Consider two open economies, A and B, characterized by the equations on the right. The parameters m, and x, are the propensities to import and export. Assume that the real exchange rate is fixed at a value of 1 and treat foreign income, Y*, as fixed. Also assume that taxes are fixed and that government purchases are exogenous (i.e., decided by the government). We explore the effectiveness of changes in G under alternative assumptions about the propensity to import. Given this information, which of the two economies do you think is larger? O A. B OB. A OC. A and B are likely to be equally large. Suppose government purchases in each economy increase by one unit. (Assume the two economies do not trade with each other.) C = c₁ + c₁ (Y-T) 1 = do + d₁Y IM = m₁Y X=x₁Y* c₁+d, 0.8 in both A and B m, 0.3 in A; m, 0.4 in B Output in A will by Output in B will by Net exports in A will by Net exports in B will by ☐.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Consider two open economies, A and B, characterized by the equations on the right. The parameters m₁ and are the propensities to import and export. Assume that the real exchange rate is fixed at a value of 1 and treat foreign income, Y*, as fixed. Also assume that taxes are fixed and that government purchases are exogenous (i.e., decided by the government). We explore the effectiveness of changes in G under alternative assumptions about the propensity to import. Given this information, which of the two economies do you think is larger? A. B B. A C. A and B are likely to be equally large. Suppose government purchases in each economy increase by one unit. (Assume the two economies do not trade with each other.) C = c₁ + c ₁ (YT) 1 = do +d₁₁Y IM = m₁Y X=x₁₁Y* c₁+d₁ = 0.8 in both A and B m₁ = 0.3 in A; m₁ = 0.4 in B Output in A will by Output in B will by Net exports in A will by Net exports in B will by
Transcribed Image Text:Consider two open economies, A and B, characterized by the equations on the right. The parameters m₁ and are the propensities to import and export. Assume that the real exchange rate is fixed at a value of 1 and treat foreign income, Y*, as fixed. Also assume that taxes are fixed and that government purchases are exogenous (i.e., decided by the government). We explore the effectiveness of changes in G under alternative assumptions about the propensity to import. Given this information, which of the two economies do you think is larger? A. B B. A C. A and B are likely to be equally large. Suppose government purchases in each economy increase by one unit. (Assume the two economies do not trade with each other.) C = c₁ + c ₁ (YT) 1 = do +d₁₁Y IM = m₁Y X=x₁₁Y* c₁+d₁ = 0.8 in both A and B m₁ = 0.3 in A; m₁ = 0.4 in B Output in A will by Output in B will by Net exports in A will by Net exports in B will by
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