Use the data from the table below to answer the following questions. Assume all
ID: 1204400 • Letter: U
Question
Use the data from the table below to answer the following questions. Assume all exports and imports remain constant at each level of real GDP and all figures are in billions.
Real GDP = DI
Closed Economy AE = C +I
Imports
Exports
Net Exports (NX)
Open Economy AE = C+I+NX
$200
$240
$30
$20
250
280
$30
$20
300
320
$30
$20
350
360
$30
$20
400
400
$30
$20
450
440
$30
$20
500
480
$30
$20
550
520
$30
$20
a. Fill in the rest of the table.
b. What is equilibrium GDP for the closed economy?
c. What is equilibrium GDP for the open economy?
d. Why are your answers for part b and part c different?
e. Suppose the United States plans to increase government spending by $20 billion at each level of GDP. What is the equilibrium GDP for this public open economy? Why has equilibrium GDP changed?
Real GDP = DI
Closed Economy AE = C +I
Imports
Exports
Net Exports (NX)
Open Economy AE = C+I+NX
$200
$240
$30
$20
250
280
$30
$20
300
320
$30
$20
350
360
$30
$20
400
400
$30
$20
450
440
$30
$20
500
480
$30
$20
550
520
$30
$20
Explanation / Answer
a) Net exports is the difference between exports and imports. Therefore NX = -10 for all rows.
Open economy values are the sum of column closed economy and net exports. The values are starting from first row 230, 270, 310, 350, 390, 430, 470, 510.
b) Equilibrium for closed economy is obtained when real GDP is eqaul to closed economy GDP which is 400.
c) Equlibrium GDP for open economy is 350.
d) Answers are different since net exports is an extra component added in the open economy GDP which shifts the graph down parallely.
e) When government spending increases by 20 million USD then equlibrium is 450. This happens beacuse the graph shifts up parallely by an amount 20.
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