Question 11 3 pts In an open economy it is assumed that Y is

Question 11 3 pts In an open economy, it is assumed that Y is national income, Y, is disposable income, C is consumption, l is investment, G is government spending, X is exports, and M is imports. The value t is the tax rate out of national income. Y=C+I+G+X-M C = 0.0% = (1-t)Y M = 0.15% where I 200, G 270, X = 180, t Calculate the equilibrium value of GDP 0.2 , the equilibrium value of the trade deficit/surplus and this is defined as a trade

Solution

Y= C+I+G+X-M

Y = 0.9y_t+200+270+180-0.15y_t

  Y= 0.9(0.8Y)+650-0.15(0.8Y)

Y= 0.72Y-0.075Y+650

0.335Y=650

Y= 1940.298

Equilibrium GDP= 1940.3 approx

Export-Import= X-M

= 180- 0.15(0.8Y)

=180-(0.15*0.8*1940.3)

=180- 232.836

= -52.836

Trade deficit/Surplus = -52.836

ans this is defined as a trade deficit.