Question

Problem 25-09 (algo) An economy with zero net exports is described below: C = 30 + 0.9 (Y-T) P = 100 G = 150 NX = 0 T = 180 The multiplier in this economy is 10. a. Find short-run equilibrium output. Instructions: Enter your responses as whole numbers. Short-run equilibrium output: b. Economic recovery abroad increases the demand for the country's exports; as a result, NX rises to 25. Short-run equilibrium output (Click to select) to . C. Assume that foreign economies are slowing, reducing the demand for the country's exports, so that NX = -25. (A negative value of net exports means that exports are less than imports.) Short-run equilibrium output (Click to select), to d. Which of the following best describes the tendency of recessions and expansions to spread across countries? O Lower planned aggregate spending abroad will reduce the amount of investment that flows into domestic industries from other countries, thereby reducing domestic short-term equilibrium output. O Lower planned aggregate spending in a nation means less imports of foreign goods, thereby reducing the short-term equilibrium output of its trading partners through lower net export (NX) values in those nations. O Lower planned aggregate spending abroad means that fewer goods will be exported from a specific nation, leaving more goods available for domestic consumption (C) in that nation, which will increase its short-term equilibrium output. Lower planned aggregate spending in one nation will reduce the amount of goods it exports abroad, thereby lowering the value of imports for its trading partners, which will reduce its short-term equilibrium output as well.

Answer 1

C = 80 + 0.9 (Y-T)

Domestic Investment = 100

G = 150

NX = 0

T = 180

a) Y = C + I + G + NX

Y = 80 + 0.9 (Y - 180) + 100 + 150 + 0

Y = 80 + 0.9Y - 162 + 100 + 150

0.1Y = 168

Y = 1,680

b) If NX rises to 25,

Y = C + I + G + NX

Y = 80 + 0.9 (Y - 180) + 100 + 150 + 25

Y = 80 + 0.9Y - 162 + 100 + 150 + 25

0.1Y = 193

Y = 1,930

c) If NX fall to -25,

Y = C + I + G + NX

Y = 80 + 0.9 (Y - 180) + 100 + 150 - 25

Y = 80 + 0.9Y - 162 + 100 + 150 - 25

0.1Y = 143

Y = 1,430

d) Option A is correct as lower planned spending abroad will reduce the domestic investment from abroad (FDI) reducing the domestic output.

Option B is incorrect lower planned spending would reduce imports of goods, it will raise net exports as net exports = exports - imports.

Option C is incorrect as exports and consumption both are positively related to GDP. If one falls and other rises, there is no impact on overall GDP.

Option D is incorrect as reduction in exports will reduce domestic output while raise foreign output while here it is written that it reduces foreign outut.