Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider the following open economy (Home economy). The real exchange rate is fixed and equal to one. Saving, investment, government spending, taxes, imports and exports

Consider the following open economy (Home economy). The real exchange rate is fixed and equal to one.

Saving, investment, government spending, taxes, imports and exports are given by:

S = −80 + 0.18Y
I = I
G = G
T = T0 + t1Y
Q = q1Y
X = x1Y∗

where T0 is the level of autonomous taxes, q1 and x1 are, respectively the marginal propensity to import, and export reaction to the foreign country’s income. An asterisk is used to designate variables related to the foreign economy.

1. Assuming that t1 = 0.1, and T0 = 100, find the values for the values of c0 and c1. (I cannot for the life of me figure out how to get the integer values for both C0 and C1 please assist)

2. Assume Foreign economy has the same equations as Home economy. Moreover, use the following values for the remaining autonomous variables: I = 500, G = 500. Use q1 = 0.1 and x1 = 0.1

(a) Solve for the equilibrium values of income, Y, and Y ∗ in both economies.

(b) Find the tax multiplier for each economy

Step by Step Solution

3.42 Rating (161 Votes )

There are 3 Steps involved in it

Step: 1

1 Assuming that t1 01 and TO 100 find the values for the values of ... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Macroeconomics

Authors: Robert J Gordon

12th edition

138014914, 978-0138014919

More Books

Students also viewed these Economics questions