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1.) Let us characterize an economy as follows:
S=0.15 I? =400 G? = TX? = IM? = 0
m = 0.05 EX? = 600
a) Find the value of the open economy multiplier
b) What is the equilibrium level of GDP for this economy?
c) Suppose that exports were to rise by 200, what would happen to the equilibrium level of GDP? Explain
d) Suppose instead that due to a tariff, there was a switch of 500 in purchases of imports to an equivalent increase in I. What would be the effect on GDP? Explain
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