MGEA06H3 Final: Ch5-Open_Economy

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greygoat862

13 Dec 2018

School

UTSC

Department

Economics for Management Studies

Course

MGEA06H3

Professor

Iris Au

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MGEA06H3 Full Course Notes

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Y = c + i + g = gdp. Implies: (real domestic output or income: domestic income = y = domestic expenditure = c + i + g, saving = investment (snat = i, nx = y ( c + i + g ) = (y c g) i. = domestic saving (from dom sources) (dom inv) Y = c + i + g + nx. Where nx = net exports = exports imports: if nx > 0, then. Trade surplus (export more goods & services than import) We have extra income not spent (& thus extra saving) We are lending this (amount) to the rest of the world (row) Net inflow of ious from row (to pay for nx>0) Net outflow of financial capital from row (i. e. as a nation, in net, we have acquired fin assets abroad: if nx = 0, then. Balanced trade (export same amount of goods & services as import)

Related Questions

An economy with zero net exports is described below:

C	= 100 + 0.6 (Y 'T)
I ^p	= 70
G	= 120
NX	= 0
T	= 150
The multiplier in this economy is 2.5.

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 80.

Instruction: Enter your response as an integer value.

Short-run equilibrium output (Click to select)decreases/ increases to ________ .

C. Assume that foreign economies are slowing, reducing the demand for the country's exports so that NX = -80. (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)increases/decreases to ___________ .

D. Which of the following best describes the tendency of recessions and expansions to spread across countries?

1. Lower planned aggregate spending in one nation will reduce the amount of goods it exports abroad, thereby lowering the value of imports for its trading partners, which will reduce its short-term equilibrium output as well.

2. Lower planned aggregate spending abroad means that fewer goods will be exported from a specific nation, leaving more goods available for domestic consumption (C) in that nation, which will increase its short-term equilibrium output.

3. Lower planned aggregate spending abroad will reduce the amount of investment that flows into domestic industries from other countries, thereby reducing domestic short-term equilibrium output.

4. Lower planned aggregate spending in a nation means fewer imports of foreign goods, thereby reducing the short-term equilibrium output of its trading partners through lower net export (NX) values in those nations.

bronzehyena108

Consider an open economy in which the real exchange rate is fixed and equal to one. Consumption, Investment, and Government spending are given by:

C=10+0.8(Y-T), I=10, G=10, and T=10, IM=0.3Y and X=0.3Y* where Y* denotes foreign output.

A) Solve for equilibrium output in the domestic economy

B) Given Y* what is the multiplier in this economy? If we were to close the economy-so exports and imports were identically equal to zero-what would the multiplier be? Why would the multiplier be different in a closed economy?

turquoisebadger177

5. Saving and net flows of capital and goods In a closed economy, saving and investment must be equal, but this is not the case in an open economy. In the following problem, you will explore how saving and investment are connected to the international flow of capital and goods in an economy. Before delving into the relationship between these various components of an economy, you will be asked to recall some relationships between aggregate variables that will be useful in your analysis. Recall the components that make up GDP. National income (Y) equals total expenditure on the economy's output of goods and services. Thus, where C = consumption, I = investment, G = government purchases, X = exports, M = imports, and NX = net exports: Y = Also, national saving is the income of the nation that is left after paying for . Therefore, national saving (S) is defined as: S = Rearranging the previous equation and solving for Y yields Y = . Plugging this into the original equation showing the various components of GDP results in the following relationship: S = This is equivalent to S = , since net exports must equal net capital outflow (NCO, also known as net foreign investment). Now suppose that a country is experiencing balanced trade. Determine the relationships between the entries in the following table, and enter these relationships using the following symbols: > (greater than), < (less than), or = (equal to). Outcomes of Balanced Trade Imports Exports 0 Net Exports Y C+I+G Investment Saving Net Capital Outflow 0

ochreduck773

MGEA06H3 Final: Ch5-Open_Economy

MGEA06H3 Full Course Notes

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