0b86b51c6a11b63d48ea6a9613ef3553f0f5b61c7e40a9d5fed79afc1d73f8f9

# 0b86b51c6a11b63d48ea6a9613ef3553f0f5b61c7e40a9d5fed79afc1d73f8f9

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Econ301wi11 Dong Won Lee - 1 - Chapter 19. Questions and Problems Answers 7. a. The equilibrium condition in the market for domestic goods is given by Y = C + I + G + X IM . Now we substitute the given equations into the equilibrium condition to get * 01 0 1 1 1 () YccYT d d YGx Y m Y     . Solving for Y gives b. Output increases by the multiplier, which equals 1 1 1 1 1 m d c . The condition 1 ) ( 0 1 1 1 d c m ensures that the multiplier is defined, positive, and greater than one. As compared to the original multiplier 1 1 1 c in the closed economy, there are two additional parameters: d 1 , which captures the effect of an additional unit of income on investment, and m 1 , which captures the effect of an additional unit of income on imports. The investment effect tends to increase the multiplier; the import effect tends to reduce the multiplier.

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0b86b51c6a11b63d48ea6a9613ef3553f0f5b61c7e40a9d5fed79afc1d73f8f9

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