In an open economy, the consumption, tax, and import functions are as follows:
C = 1.7 + .8 (Y - T)
T = .1Y +.2
IM = .06 + .1Y
Planned investment is $2 billion, planned government expenditures are $ 1 billion, and planned exports are $ 1 billion.
Calculate:
a. Real GDP at equilibrium expenditure
b. The investment multiplier
c. The autonomous tax multiplier
d. The marginal tax rate multiplier
e. The government budget deficit
f. Net export
g. The change in GDP resulting from a $ 1 billion rise in government expenditures
h. In problem g) the changes in saving, consumer expenditures, and government
budget deficit.
2. What is the difference between the multiplier in a closed private economy and the multiplier in a mixed open economy.