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1.
Consider the following information about a hypothetical open economy.
a)
What is the equilibrium level of national income, Y*?
b)
What is the marginal propensity to consume out of Y (mpc)?
c)
What is the marginal propensity to invest out of Y (mpi)?
d)
What is the marginal propensity to export out of Y (mpx)?
e)
What is the marginal propensity to import of Y (mpm)?
f)
In this economy the general formula for the investment multiplier is:
K
I’
= 1/(1mpcmpimpx+mpm), what is the numerical value of the multiplier given your
answers above?
g)
What does the multiplier actually tell us?
h)
What would happen to the equilibrium level of national income if planned investment
exogenously increased by $1 Billion?
2.
Suppose that the following set of equations describes ALL the relevant information about the
Czech Republic.
Consumption function:
C = 2000 + .4Yd
(where Yd = disposable income)
Planned Investment function:
I = 800
Government expenditures function:
G = 900
Tax function:
T = 700
Export function:
EX = .2Y
Import function:
IM = 100+.1Y
The full employment level of national income:
Y
Full Employment
= 7,000.
a)
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 Spring '08
 KYLE
 Macroeconomics

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