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Shiestion 2 [ii (iii) [iv] Consider an economy where the various components of expenditure follow these equations: C = 100 + 0.8? I = 200

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Shiestion 2 [ii (iii) [iv] Consider an economy where the various components of expenditure follow these equations: C = 100 + 0.8? 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} How would the results in [ii] change if the economy had a. marginal propensity to import equal to 0.6? Discuss your ndings. [20 marks] Discuss the following statement: 'A monetary expansion leads to a deterioration of a country's trade balance.' [30 marks]

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