Question

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Answer 1

(a) Equilibrium level of GDP is when real domestic output is equal to aggregate expenditure in private closed economy . And it is equal ,when GDP level is $400 billion.Hence, equilibrium level of GDP in private closed economy = $400 billion.

(b)

(1)	(2)	(3)	(4)	(5)	(6)
Real domestic output (Billions)	Aggregate expenditure, private closed economy (Billions)	Exports (Billions)	Imports (Billions)	Net exports (Billions)	Aggregate expenditures, private open economy (Billions)
200	240	20	30	(20-30) =-10	(240-10)= 230
250	280	20	30	-10	(280-10)=270
300	320	20	30	-10	(320-10)=310
350	360	20	30	-10	(360-10)=350
400	400	20	30	-10	(400-10)=390
450	440	20	30	-10	(440-10)=430
500	480	20	30	-10	(480-10)=470
550	520	20	30	-10	(520-10)=510

Now, equilibrium level of GDP for the open economy is when Real domestic output is equal to aggregate expenditure in open economy . Hence , equilibrium level of GDP= $ 350 billion.

Change in equilibrium level of GDP caused by addition of net exports = $(400-350) billion = $50 billion.

(c) Now, if imports are $10 billion greater at each level of GDP, we get :

(1)	(2)	(3)	(4)	(5)	(6)
Real domestic output (Billions)	Aggregate expenditure, private closed economy (Billions)	Exports (Billions)	Imports (Billions)	Net exports (Billions)	Aggregate expenditures, private open economy (Billions)
200	240	20	40	(20-40) =-20	(240-20)= 220
250	280	20	30	-20	(280-20)=260
300	320	20	30	-20	(320-20)=300
350	360	20	30	-20	(360-20)=340
400	400	20	30	-20	(400-20)=380
450	440	20	30	-20	(440-20)=420
500	480	20	30	-20	(480-20)=460
550	520	20	30	-20	(520-10)=500

Now, equilibrium level of GDP for the open economy is $300 billion.