Consider two open economies, A and B, characterized by the equations on the right. C = so + c1{Y- T) The parameters m1 and x1 are the propensities to import and export. Assume that the real exchange I = d + at Y rate is xed at a value of 1 and treat foreign income, Y', as xed. Also assume that taxes are xed and a 1 that government purchases are exogenous (i.e., decided by the government). We explore the 1M = m Y effectiveness of changes in G under alternative assumptions about the propensity to import. 1 Given this information, which of the two economies do you think is largef? X =X1 Y * O A. A 01 +d1=0.7 in bothAandB 05' B m1=0.1inA;m1=0.4inB O C. A and B are likely to be equally large. Suppose government purchases in each economy increase by one unit. (Assume the two economies do not trade with each other.) Output inAwill V by Output in B will V by lr:rl m ' Click to select your answer(s). A rate is xed at a value of 1' and treat foreign inoome, Y*, as xed. Also assume that taxes are xed and C = 50 + 61(Y - T) that government purchases are exogenous (i.e., decided by the government). We explore the effectiveness of changes in G under alternative assumptions about the propensity to import. l = do + d1 Y Given this information, which of the two economies do you think is largef? IM = m1 Y A. A O X=x1 Y * O B. B O C. Aand B are likely to be equally large. 61 +d, = 0.7 in both Aand B Suppose government purchases in each economy increase by one unit. (Assume the two economies do m1 = 0.1 in A; m1 = 0.4 in B not trade with each other.) Output in Awill V by Output in Bwill V by Net exports in A will V by Net exports in B will V by Click to select your answer(s)