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Economy aggregate expenditure model

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Given the following variables in the open economy aggregate expenditure model, autonomous consumption (C o) = 200, autonomousinvestment (I o) = 200, government spending (G o) = 100, exportspending (X o) = 100, autonomous import spending (M o) = 100 taxes(Tp) = 0, marginal propensity to consume (c1) = 0.8 marginalpropensity to invest (i1) = 0.1, and marginal propensity to import(m1) = 0.15,

a. Calculate that equilibrium level of income for the open economyaggregate expenditure model.

b. If there is an increase in autonomous import expenditure from100 to 200 resulting from an increase in the currency exchangerate, calculate the new equilibrium level of income and the valueof the multiplier.

c. Compare with the original equilibrium in part a, if thegovernment decides to impose taxes (Tp) of 100, calculate the newequilibrium level of income.

d. Hint: Remember that consumption has an autonomous component andis a function of disposable income, Yd where Yd = Y - Tp

Reference no: EM131186228

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