Assume that the following apply for an open economy: Autonomous consumption = 3 000 Marginal propensity...

 

 

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Assume that the following apply for an open economy: Autonomous consumption = 3 000 Marginal propensity to consume = 0.75 Planned investments = 2 500 Taxes = 1 000 Government purchases of goods and services = 500 Exports = 3 000 Imports = 2 500 A. Calculate the consumption function of this economy. Simplify as far as possible. (2p) Answer: B. Calculate the autonomous expenditure of this economy. (2p) Answer: C. Calculate the planned aggregate expenditure function. Simplify as far as possible. (2p) Answer: D. Calculate the short-run equilibrium output. (2p) Answer: Suppose that imports now become a function of income and that the import function can be written as: IM=2000+0.15Y. Assume otherwise that the remaining variables are the same as before. E. Calculate the new planned aggregate expenditure function (simplify as far as possible), (2p) Answer: and the short-run equilibrium output level. (2p) Answer: * (15625) * (PAE = 6250+ 0.6Y, PAE=6250 +0,6Y, 6250+ 0.6Y, 6250 +0,6Y) F. By how much does the multiplier change when we consider the marginal propensity to import? Calculate it either by percentage change or in absolute term. (2p) Answer: x (-1.5, -1,5, -0.375, -0,375, -37.5, -37,5, -37.5%, -37,5%) Assume that the following apply for an open economy: Autonomous consumption = 3 000 Marginal propensity to consume = 0.75 Planned investments = 2 500 Taxes = 1 000 Government purchases of goods and services = 500 Exports = 3 000 Imports = 2 500 A. Calculate the consumption function of this economy. Simplify as far as possible. (2p) Answer: B. Calculate the autonomous expenditure of this economy. (2p) Answer: C. Calculate the planned aggregate expenditure function. Simplify as far as possible. (2p) Answer: D. Calculate the short-run equilibrium output. (2p) Answer: Suppose that imports now become a function of income and that the import function can be written as: IM=2000+0.15Y. Assume otherwise that the remaining variables are the same as before. E. Calculate the new planned aggregate expenditure function (simplify as far as possible), (2p) Answer: and the short-run equilibrium output level. (2p) Answer: * (15625) * (PAE = 6250+ 0.6Y, PAE=6250 +0,6Y, 6250+ 0.6Y, 6250 +0,6Y) F. By how much does the multiplier change when we consider the marginal propensity to import? Calculate it either by percentage change or in absolute term. (2p) Answer: x (-1.5, -1,5, -0.375, -0,375, -37.5, -37,5, -37.5%, -37,5%)

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SOLUTION A The consumption function can be calculated as follows C Autonomous consumption Marginal p... View the full answer