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Chapter_9_Key_Question_Solutions

Chapter_9_Key_Question_Solutions - 9-2(Key Question...

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9-2 ( Key Question ) Assuming the level of investment is \$16 billion and independent of the level of total output, complete the following table and determine the equilibrium levels of output and employment in this private closed economy. What are the sizes of the MPC and MPS? Possible levels of employment (millions) Real domestic output (GDP=DI) (billions) Consumption (billions) Saving (billions) 40 45 50 55 60 65 70 75 80 \$240 260 280 300 320 340 360 380 400 \$244 260 276 292 308 324 340 356 372 \$ _____ \$ _____ \$ _____ \$ _____ \$ _____ \$ _____ \$ _____ \$ _____ \$ _____ Saving data for completing the table (top to bottom): \$-4; \$0; \$4; \$8; \$12; \$16; \$20; \$24; \$28. Equilibrium GDP = \$340 billion, determined where (1) aggregate expenditures equal GDP (C of \$324 billion + I of \$16 billion = GDP of \$340 billion); or (2) where planned I = S ( I of \$16 billion = S of \$16 billion). Equilibrium level of employment = 65 million; MPC = .8; MPS = .2. 9-9 ( Key Question ) The data in columns 1 and 2 of the table below are for a private closed economy. (1) Real domestic output (GDP=DI) billions (2) Aggregate Expenditures, private closed economy, billions (3) Exports, billions (4) Imports, billions (5) Net exports, private economy (6) Aggregate expenditures, open billions \$200 \$250 \$300 \$350 \$400 \$450 \$500 \$550 \$240 \$280 \$320 \$360 \$400 \$440 \$480 \$520 \$20 \$20 \$20 \$20 \$20 \$20 \$20 \$20 \$30 \$30 \$30 \$30 \$30 \$30 \$30 \$30 \$ _____ \$ _____ \$ _____ \$ _____ \$ _____ \$ _____ \$ _____ \$ _____ \$ _____ \$ _____ \$ _____ \$ _____ \$ _____ \$ _____ \$ _____ \$ _____ a. Use columns 1 and 2 to determine the equilibrium GDP for this hypothetical economy.

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b. Now open up this economy to international trade by including the export and import figures of columns 3 and 4. Fill in columns 5 and 6 to determine the equilibrium GDP for the open economy.
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