Class 12 Macro Economics - Chapter Open Economy Macroeconomics NCERT Solutions | Suppose C = 40 + 0.8Y D, T = 50, I = 60,

Welcome to the NCERT Solutions for Class 12th Macro Economics - Chapter Open Economy Macroeconomics. This page offers a step-by-step solution to the specific question from Exercise 1, Question 13: suppose c 40 0 8y d t 50 i 60 g 40 x....
Question 13

Suppose C = 40 + 0.8Y D, T = 50, I = 60, G = 40, X = 90, M = 50 + 0.05Y

(a) Find equilibrium income. (b) Find the net export balance at equilibrium income (c) What happens to equilibrium income and the net export balance when the government purchases increase from 40 and 50?

Answer

C = 40 + 0.8YD
T = 50
I = 60
G = 40
X = 90
M = 50 + 0.05Y

(a) Equilibrium level of income

Y = C + c (Y - T) + I + G + X - M – mY

     = 560

(b) Net exports at equilibrium income 

NX = X - M - My

= 90 – 50 -0.05×560
= 40 – 28 =12

(c) When G increase from 40 to 50,

Net export balance at equilibrium income

NX = X - (M - mY)
= 90 - 50 + 0.05 × 600
= 40 - 30 = 10

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