Aggregate expenditures billions Real GDP DI Aggregate Net ex

Aggregate expenditures (billions) Real GDP DI Aggregate Net exports billions) S 20 (billions) expenditures Exports Imports billions) (billions) billions) $100 $25 20 150 180 210 240 270 300 140 160 200 220 240 20, 20 20 20 (a) What is the equilibrium GDP for the private closed economy? (b) Including the international trade figures for exports and imports, calculate Net exports and Aggregate expenditures columns (display in table above). What is the new equilibrium GDP for the private open economy? (c) What will happen to equilibrium GDP if exports were $10 billion smaller and imports $20 billion greater at each level of GDP? (d) What is the size of the multiplier in this economy? (e) What do you think would happen to equilibrium GDP if the U.S. dollar appreciated relative to other currencies and tariffs were put on the import of steel and aluminum?

Solution

(a) In private closed economy, Aggregate expenditure (AE) = Real GDP (Y)

From given values, closed-economy equilibrium Y = AE = $120 billion

(b) Net exports (NX) = Exports - Imports = $(25 - 5) billion = $20 billion

Open-economy AE = Closed-economy AE + NX, computed as follows.

Open-economy equilibrium Y = Open-economy AE = $180 billion

c) New exports (X), imports (M), NX and Closed-economy AE are computed as follows.

New Open-economy equilibrium Y = New Open-economy AE = $90 billion

(d)

Change in NX = $(20 + 10) billion = $30 billion

Change in equilibrium Y = $(180 - 90) billion = $90 billion

Multiplier = Change in equilibrium Y / Change in NX = $90 billion / $30 billion = 3

NOTE: As per Chegg Answering Policy, 1st 4 parts are answered.

Y	Closed-economy AE	Exports	Imports	Net exports	Open-economy AE
($Billion)	($Billion)	($Billion)	($Billion)	($Billion)	($Billion)
90	100	25	5	20	120
120	120	25	5	20	140
150	140	25	5	20	160
180	160	25	5	20	180
210	180	25	5	20	200
240	200	25	5	20	220
270	220	25	5	20	240
300	240	25	5	20	260