Question 26 - Question 31: Use the income-expenditure model to answer the questions. Suppose an open economy with fixed prices can be described by the following equations: Consumption: C =540 + 0.6YD; where YD = disposable income Investment: IPlanned = 240 - 500i Government spending: G = 280 Taxes: T =65 +0.15Y Transfers: TR = 265 -0.1Y Exports: X =760-35EFC/DC Imports: IM = 190 + 0.075Y + 15EFC/DC NOTE: Unless otherwise stated, interest rate, I, is held constant at 0.05 (5%) and exchange rate, EFC/DC, is held constant at 2 (FC per DC). Question 26 Find the equilibrium level of output (rounded to the nearest unit & be sure to show your work). AE Planned = 1625 + 0.375Y Y* = 2600 Output: 2600 Question 27 When the economy reaches its equilibrium, its trade surplus is equal to (rounded to the nearest unit & be sure to show your work): NX =[760 - 35(2)] - [190 + 0.075(2600) + 15(2)] =275Question 23 The economy is initially in its equilibrium as shown in Question 2E. Suppose the government finds the initial budget surplus is too large and wants to lower it to 132 via a change in fusum {autonmo taxes. Find the change in lumpsum {autonomous} taxes that would achieve this goal {rounded to the nearest unit and be sure to show your work]. Y\" = 2543 T=sw.25[2643)= 15 aTn=15E-5 =5u Change in lump-sum {autonomous} taxes: 5f! Questions 29 31: The economy is initially in its longrun equilibrium as shown in Question 2E. Suppose there is a change in consumption preference in foreign households such that foreign households consume fewer imported goods. As a result, the domestic net exports change by ll for any given level of output and exchange rate. In additiom this change in consumption preference in foreign households causes interest rate to fall by 2 percentage points and domestic currency to depreciate by Ill FC per DC. Hint; You need to determine whether autonomous exports or autonomous imports change or not; if so, whether the variable goes up or down Question 29 Compare to the initial equilibrium as shown in Question 215, find the change in equilibrium level of output {rounded to the nearest unit and be sure to show your work}. 1 NP 2 [_ 95) x 1-0315 =152 Change in output: Question 3'] Compare to the initial equilibrium as shown in Question Eli find the change in equilibrium level of net exports {rounded to 1 decimal place and be sure to show your work]. mix: 105.5(12.9]=93.s Change in net exports: Quiltion 31 Find the cyclical budget balance as a result of this change in the consumption preference in foreign households {rounded to the nearest unit and be sure to show your work]? sous: [Ili +o.1) x{ 152}=3s Cyclical budget balance