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 – M
C = 10 + 0.8 Yd
T = 10+ 0.2Y
X = 80
I = 35
G = 15
TR = 10 – 0.05Y
M = 22 + 0.1Y
Where: Y is domestic income
Yd is 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
Yf is income at full employment
(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) Determine by how much government spending has to increase in order to achieve full employment (Yf =300). How does this change affect the budget balance, and trade balance?
An open economy is described by the following system of macroeconomic equations, in which all macroeconomic...
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