Consider a Keynesian open economy in which investment spending (I), export (X)and government spending (G) are assumed to be autonomous and taxes (T) are all lump – sum. Private personal consumption expenditure (C) is directly related to disposable income (Yd) and import (M) is directly related to national income (Y). You are given the following information that characterized this economy:
C = C₀+βY; I = I₀; G = G₀; x =X₀; T = T₀; M = M₀ + αY where
Β and α are parameters. Also 0< α, β < 1.
(A) Determine the equilibrium level of national () algebraically from the information provided using the identity Y= C+I+G+X-M.
(B) Evaluate (Y) given that C₀= 20; α=0.4; T = 40; I = 60; G= 50; X=100; M₀ = -10; β=0.6
(C) Determine the open economy multiplier and explain what it means.
(D) Complete consumption expenditure (C) at equilibrium level of income(Y)
(E) If the full employment level of income Y is 3000 and the government wishes to increase national income from the level as determined in (b), by how much should
I. Taxes charge?
II. Government expenditure change?
III. Exports change?
IV. Autonomous import change?