3. Assume the model Y = C + I + G + X - M, where C = a + bYd and Yd=Y - Tx; Tx i

Question

3. Assume the model Y = C + I + G + X - M, where C = a + bYd and Yd=Y - Tx; Tx is exogenous; I = f( i but MPI = 0; G = Go and X = Xo; M = Mo + mY; Money supply is exogenously determined; Md = Mt + Ml with Mt=f(Y) and Ml=f(i) Now, assume there is an autonomous increase in the level of exports. This would result in: (Points : 3) an increase in aggregate income a decrease in aggregate income no change in aggregate income an income change of indeterminant direction Question 14. 14. Given the model Y = C + I + G + Xn C = 20 + .8Y I = 40 G = 60 Tx = 30

Explanation / Answer

Assuming no other changes in the determinants of aggregate demand This would result in an increase in aggregate income .

Y=C+I+G+X-M

A rise in exports holding everything else constant would increase the income.

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