Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Chapter 13, Problem 7RQ
To determine
Difference in IS-LM model of closed and open economy and use of model for transferring recession to other countries.
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What is the relationship between national saving
and investment in a closed economy? Start by
explaining what is a closed economy.
How will you differentiate an open economy from a closed economy? Explain with the help of an example.
Consider the following information about an open economy: GDP is $1,000 million, consumption is $850 million, taxes are
$50 million, government spending is $100 million, exports are $100 million, and imports are $125 million. Calculate the
following variables for this economy:
Instructions: Enter numbers rounded to the nearest whole number.
a. Net exports:
million
b. Investment:
million
c. Private savings:
million
d. Public savings:
|million
e. National savings:
million
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- What is Foreign Direct Investment (FDI) all about?arrow_forwardWhat do you understand by the term “closed economy”? For a closed economy show, National savings = National Investmentarrow_forwardUnder a closed system, when net exports equals 0, what must be true about investment spending? A Investment Consumption B Investment = Savings (C) Investment = Government Spending D) Investment Government spending - taxesarrow_forward
- Which of the following is TRUE of an open economy? GDP = C+I+G+X- IM O GDP = C+ I+G GDP = T- TR -G GDP = SPrivate + SGovernment %3Darrow_forwardSuppose that households decide to save a larger share of their income. Using Mundell - Fleming model for a small open economy, answer the following questions : a. How does it affect IS curve and LM curve ? explain why ? b . What are the changes in total output , exchange rate , consumption , investment and net exports of the economy? Explain why? c . Draw Mundell - Fleming graph to demonstrate your answer ?arrow_forwardWhy is per-capita income NOT always the best indicator of an emerging market's potential? What does the concept of purchasing power parity (PPP) suggest?arrow_forward
- 26. Chapter ma2pe09r, Section .32, Problem 052 (ID: 052.32.MANK09) Figure 32-5 Refer to the following diagram of the open-economy macroeconomic model to answer the questions that follow. Graph (a) Graph (b) REAL INTEREST RATE d b S₁ S₂ QUANTITY OF LOANABLE FUNDS REAL EXCHANGE RATE REAL INTEREST RATE NCO D₂₁ D₂ NET CAPITAL OUTFLOW Graph (c) S₁ S₂ S₂ h QUANTITY OF DOLLARS Refer to Figure 32-5. If the interest rate were initially at r₂ and an import quota were imposed, the interest rate would Oa. decrease because supply would shift right. Ob. stay at r2. Oc. decrease because demand would shift left. Od. increase because supply would shift left.arrow_forwardIf the government reduces government purchases, then what happens to the real interest rate in a closed economy, small open economy, and a large open economy?arrow_forwardEconomics Consider the following data for country B, an open economy, for this year: Y = $14 trillion C = $6 trillion G = $2 trillion NX = $3 trillion T = $4 trillion TR = $0.5 trillion a) Find country B’s domestic investment. b) Find country B’s private saving. c) Find country B’s public saving. d) Find country A’s national saving. e) Find country B’s net foreign investmentarrow_forward
- An open economy is described by the following system of macroeconomic equations, in which all macroeconomic aggregate are measured in billions of Namibian dollars, N$:Y = C + I + G + X –MC = 160 + 0.6 YdT = 100 + 0.25YX = 80I = 150G = 150M = 22 + 0.25YWhere: Yis domestic incomeYdis private disposable income C is aggregate consumption spending T is government tax revenue I is investment spending X represents exports M represents imports of goods and services. 1.1 (a)Determine the equilibrium level of income/ output. (b) Illustrate the aggregate spending curve and equilibrium level of income on a diagram. (c) Determine the surplus/ deficit in the government budget at equilibrium.(d) Determine trade balance at equilibrium. (e) Find the multiplier applicable to autonomous tax and interpret it.1.2 (a)Use the multiplier applicable to exports, to explain how a 100 billion decline in demand for exports could have affected the economy’s:(i)GDP/ output (ii)Balance of trade (iii)Government budgetarrow_forwardAn open economy is described by the following system of macroeconomic equations, in which all macroeconomic aggregate are measured in billions of Namibian dollars, N$:Y = C + I + G + X –MC = 160 + 0.6 YdT = 100 + 0.25YX = 80I = 150G = 150M = 22 + 0.25YWhere: Yis domestic incomeYdis private disposable income C is aggregate consumption spending T is government tax revenue I is investment spending X represents exports M represents imports of goods and services. (a) Determine trade balance at equilibrium. (b) Find the multiplier applicable to autonomous tax and interpret it. (c)Use the multiplier applicable to exports, to explain how a 100 billion decline in demand for exports could have affected the economy’s: (i)GDP/ output (ii)Balance of trade (iii)Government budgetarrow_forwardConsider the following hypothetical open economy. According to the expenditure approach, for this economy, Y = C + I + G + NX. Additionally, for the year 2020 the economy is characterized as follows: National saving is 30 percent of GDP Investment is 20 percent of GDP Net capital outflow 1 trillion dollars In this economy in 2020, what is the level of GDP or Y? Please report your answer in trillions of dollars.arrow_forward
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