If the foreign sector is added to the model and there is a positive marginal propensity to import z, find

(a) the reduced form,

(b) the equilibrium level of income, and

(c) the effect on the multiplier, given

where C0 = 70, I0 = 90, G0 = 65, X0 = 80, Z0 = 40, b = 0.9, and z = 0.15.

Transcribed Image Text:

Y=C+1+G+ (X - Z) I = lo C = Co + by G = Go Z = Zo + ZY X = Xo