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What is the equilibrium level of national income

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Reference no: EM132559706

You are given the following information about an open economy:

AE=150+0.5Y

G=20

You also know that at equilibrium:

Private saving plus budget surplus =20

Trade balance (trade surplus in this case) =10.

Assume the price level to be constant.

a. What is the equilibrium level of national income?

b. What is the level of private investment at the equilibrium level of national income?

c. If government spending were to increase by 10TL, by how much would the equilibrium national income change?

d. Assume that prices are variable. Describe the initial equilibrium using the AD/SRAS model and how this equilibrium changes due to an increase in government spending by 10TL. How would the final equilibrium change if we assume that prices are variable? Explain.

e. Assume that the economy was initially in long-run equilibrium. Describe the equilibrium in reference to AD/SRAS/LRAS. Explain what happens from the moment government spending increases until full-employment equilibrium is reached. Explain the sequence of events that lead from one long-run equilibrium to another.

Reference no: EM132559706

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