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Question 2 Consider an economy where the various components of expenditure follow these equations: C = 100 + 0.BY I = 200 G - 100

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Question 2 Consider an economy where the various components of expenditure follow these equations: C = 100 + 0.BY I = 200 G - 100 X - 400 M = 0.2Y Calculate the equilibrium level of GDP In this economy in the short- run. (20 marks) Suppose that a boost in output in the rest of the world causes an Increase in the country's export to X" = 800. Calculate the effect of the increase in exports on the equilibrium level of GDP as well as on the trade balance of the country. (30 marks) (if) How would the results in (ij] change if the economy had a marginal propensity to import equal to 0.67 Discuss your findings. (20 marks) (iv) Discuss the following statement: 'A monetary expansion leads to a deterioration of a country's trade balance." (30 marks) END

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