This question is concerned with the repercussion effects of a domestic expansion once we recognize that,...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
This question is concerned with the repercussion effects of a domestic expansion once we recognize that, as a consequence, output abroad will expand. Suppose that at home there is an increase in autonomous spending, D - A, that falls entirely on domestic goods. (Assume constant interest rates throughout this problem.) a. What is the effect on income, disregarding repercussion effects? What is the impact on our imports? Denote the increase in imports by AQ. b. Using the result for the increase in imports, consider what happens abroad. Our increase in imports means that foreign countries experience an increase in their exports and therefore an increase in the demand for their goods. In response, their output expands. Assuming the foreign marginal propensity to save is s* and the foreign propensity to import is m *, by how much will a foreign country's income expand as a result of an increase in its exports? C. Now combine the pieces by writing the familiar equation for equilibrium in the domestic goods market: Change in supply, AY, equals the total change in demand, AĀ + AX – mAY + (1 – s)AY, or AĀ + AX ΔΥ: Noting that our increase in exports, AX, is equal to foreigners' increase in imports, we can replace AX, with the answer to part b to obtain a general expression for the multiplier with repercussions. d. Substitute your answer to part b in the formula for the change in our exports, AX = m*AY*. e. Calculate the complete change in our income, including repercussion effects. Now compare your result with the case in which repercussion effects are omitted. What difference do repercussion effects make? Is our income expansion larger or smaller with repercussion effects? f. Consider the trade balance effect of a domestic expansion with and without repercussion effects. Is the trade deficit larger or smaller once repercussion effects are taken into account? This question is concerned with the repercussion effects of a domestic expansion once we recognize that, as a consequence, output abroad will expand. Suppose that at home there is an increase in autonomous spending, D - A, that falls entirely on domestic goods. (Assume constant interest rates throughout this problem.) a. What is the effect on income, disregarding repercussion effects? What is the impact on our imports? Denote the increase in imports by AQ. b. Using the result for the increase in imports, consider what happens abroad. Our increase in imports means that foreign countries experience an increase in their exports and therefore an increase in the demand for their goods. In response, their output expands. Assuming the foreign marginal propensity to save is s* and the foreign propensity to import is m *, by how much will a foreign country's income expand as a result of an increase in its exports? C. Now combine the pieces by writing the familiar equation for equilibrium in the domestic goods market: Change in supply, AY, equals the total change in demand, AĀ + AX – mAY + (1 – s)AY, or AĀ + AX ΔΥ: Noting that our increase in exports, AX, is equal to foreigners' increase in imports, we can replace AX, with the answer to part b to obtain a general expression for the multiplier with repercussions. d. Substitute your answer to part b in the formula for the change in our exports, AX = m*AY*. e. Calculate the complete change in our income, including repercussion effects. Now compare your result with the case in which repercussion effects are omitted. What difference do repercussion effects make? Is our income expansion larger or smaller with repercussion effects? f. Consider the trade balance effect of a domestic expansion with and without repercussion effects. Is the trade deficit larger or smaller once repercussion effects are taken into account?
Expert Answer:
Related Book For
Posted Date:
Students also viewed these mathematics questions
-
A canned food company will produce ABC type of food. From the data for the last 1 month, the largest demand reached 5,000 packs/day, and the smallest demand reached 1000 packs/day. The inventory of...
-
Suppose a flexible exchange rate. There is an increase in the degree of uncertainty in credit markets, which affects firms but not consumers, as considered in Chapter 9. (a) Determine the effects on...
-
Consider Example 4f, which is concerned with the multinomial distribution. Use conditional expectation to compute E[NiNj], and then use this to verify the formula for Cov(Ni,Nj) given in Example 4f.
-
Assuming that the Fed judges inflation to be the most significant problem in the economy and that it wishes to employ all of its policy instruments except interest on reserves, what should the Fed do...
-
Match the descriptions to the blood vessel in the key. Answers may be used more than once. Key: a. Venules b. Veins c. Capillaries d. Arteries e. Arterioles Take blood away from the heart
-
1. The alliance between Patagonia and Walmart is an excellent example of a small business and a large business working together to achieve an objective. Do you think the same results would be...
-
A university pumps its water from wells located on campus. The falling water table has caused pumping costs to increase, the quantity of water available to decrease, and the quality of water to...
-
The comparative statements of Painter Tool Company are presented below. All sales were on account. Instructions Compute the following ratios for 2015. (Weighted-average common shares in 2015 were...
-
es Initial investment Annual net income Expected life Salvage value Merrill's cost of capital $ 2,100,000 $ 200,000 8 years $ 210,000 Assume straight line depreciation method is used. Required: 10 1....
-
Kate, Bob and Tim work in your team. Each has a separate work role but must liaise with each other to coordinate the workflow and to complete overall team tasks.There is a problem between Kate and...
-
Barnes Company reports the following for its product for its first year of operations. Direct materials Direct labor Variable overhead Fixed overhead Variable selling and administrative expenses...
-
A bond has a face value of $10,000 and a conversion price of $46.04. The stock is currently trading at $35.02. What is the conversion ratio?
-
Draw the below array AFTER each of the following operations: (a) An array named FRUIT with initial item as Banana, Papaya, Pineapple and Watermelon. Max size for the array is 15. (b) Add item...
-
8. The XY Co. has sales of $198,000, net profit of $17,500, fixed assets of $125,400, current assets of $44,300. What is the total asset turnover rate?
-
A company received a government grant of 25% towards the purchase of the cost of a machine costing 120,000 during the year ended 31 March 2014. The plants residual value was 20,000 and has an...
-
A constant electric field accelerates a proton from rest through a distance of 1.70 m to a speed of 1.81 x 105 m/s. (The mass and charge of a proton are m = 1.67 x 10-27 kg and q = e = 1.60 x 10-19...
-
An initial investment made to start a business by selling ownership in that business to a group of investors would involve what 2 accounts?
-
Illini Company, Inc. Balance Sheet as of 12/31/20X0 Assets Current Assets: Cash $1,500,000 Accounts receivable, net 18,000 Inventory 50,000 Total current assets 1,568,000 Equipment 90,000 Goodwill...
-
An absorption mode Lorentzian line, centred at frequency Ω is given by We are going to work out the width of the line at half-height. Clearly, this is independent of the position of the...
-
Suppose that we record a spectrum with the simple pulse-acquire sequence using a 90 pulse applied along the x-axis. The resulting FID is Fourier transformed and the spectrum is phased to give an...
-
Describe how weighting functions can be used to improve the resolution in a spectrum. In practice, what sets the limit on the improvement that can be obtained? Will zero filling improve the...
-
Goods are products a business sells like a. haircuts. b. conveyer belts. c. car insurance. d. health care.
-
Which of the following are the factors of production? a. Labor, natural resources, capital, entrepreneurs, technology, and intellectual property b. Labor, capital, entrepreneurs, motivation, and good...
-
Which of the following is a current sociocultural trend? a. A decrease in the overall U.S. population b. An increase in the population of Americans ages 30 to 45 years old c. A decrease in the U.S....
Migrating To The Cloud Oracle Client Server Modernization 1st Edition - ISBN: 1597496472 - Free Book
Study smarter with the SolutionInn App