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Suppose the goods market in an economy is represented by the following equations. C = 500 + 0.5YD          ...

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Economics

Suppose the goods market in an economy is represented by thefollowing equations.

C = 500 +0.5YD           I= 500 – 2000 i + 0.1Y       G =500

X = 0.1Y* +100e          Q = 0.2Y-100e                  T = 400

Y* =1000                     i = 0.05(5%)                       e = 1

Z = C + I + G + X -eQ                                              Y = Z (equilibrium condition)

  1. Suppose G increases by 100 (to 600). Calculate the newequilibrium level of output. What is the size of themultiplier?  

  2. Based on your answer to d, calculate the new level of Q.Calculate the change in net exports caused by this increase inG.

  3. Suppose the marginal propensity to imports (in imports equation)decreases from 0.2 to 0.1. Assume all other variables are the same.What happens to the size of multiplier? Compare the changes in Ycaused by the increase in G in part d and with a new marginalpropensity to imports (0.1). answer this please

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