An economy with zero net exports is described below :40 + 0.8 (Y-7) 120 NX 150 T

Question

An economy with zero net exports is described below :40 + 0.8 (Y-7) 120 NX 150 The multiplier in this economy is 5 a. Find short-run equilibrium output. Instruction: Enter your response as an integer value Short-run equilibrium output: b. Economic recovery abroad increases the demand for the country's exports; as a result, NX rises to 100 Instruction: Enter your response as an integer value 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 -100. (A negative value of net exports means that exports are less than imports.) Instruction: Enter your response as an integer value Short-run equilibrium output (Click to select) v 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 O Lower planned aggregate spending abroad means that fewer goods will be exported from a specific O Lower planned aggregate spending in one nation will reduce the amount of goods it exports abroad, O Lower planned aggregate spending in a nation means less imports of foreign goods, thereby reducing the industries from other countries, thereby reducing domestic short-term equilibrium output. nation, leaving more goods available for domestic consumption (C) in that nation, which will increase its short-term equilibrium output. thereby lowering the value of imports for its trading partners, which will reduce its short-term equilibrium output as well short-term equilibrium output of its trading partners through lower net export (NX) values in those nations

Explanation / Answer

a) At equilibrium, Y= C + I + G + NX

Y= 40 + 0.8(Y-150) + 70 + 120 + 0

Y = 230 + 0.8Y - 120

0.2Y = 110

Y= 550

Short run equilibrium output is 550

b) change in output = multiplier * change in autonomous spending

Change in output= 5*100= 500

Short run equilibrium output increases to 500+550= 1050

c) short run equilibrium output decreases to 550-500= 50

d) correct statement- last statement

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 exports values in those nations.

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