The data in the first two columns below are for a closed economy. Use this table
ID: 1245152 • Letter: T
Question
The data in the first two columns below are for a closed economy. Use this table to answer the following questions. Real GDP = DI (billions) Aggregate expenditures (billions) Exports (billions) Imports (billions) Net exports (billions) Aggregate expenditures (billions) $100 $120 $10 $15 $_____ $_____ 125 140 10 15 _____ _____ 150 160 10 15 _____ _____ 175 180 10 15 _____ _____ 200 200 10 15 _____ _____ 225 220 10 15 _____ _____ 250 240 10 15 _____ _____ 275 260 10 15 _____ _____ (a)What is the equilibrium GDP for the closed economy? (b)Including the international trade figures for exports and imports, calculate net exports and determine the equilibrium GDP for an open economy. (c)What will happen to equilibrium GDP if exports were $5 billion larger at each level of GDP? (d)What is the size of the multiplier in this economy?Explanation / Answer
Real GDP Aggregate Net Aggregate
= DI expenditures Exports Imports exports expenditures
(billions) (billions) (billions) (billions) (billions) (billions)
$100 $120 $10 $15 $–5 $115
125 140 10 15 –5 135
150 160 10 15 –5 155
175 180 10 15 –5 175
200 200 10 15 –5 195
225 220 10 15 –5 215
250 240 10 15 –5 235
275 260 10 15 –5 255
(a) For a closed economy, equilibrium GDP = $200 billion.
(b) For an open economy, equilibrium GDP = $175 billion.
(c) Equilibrium GDP would return to $200 billion.
(d) Equilibrium GDP would rise to $225 billion.
(e) When aggregate expenditures change by 5, equilibrium GDP changes
by 25 so the multiplier must be 5.
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