Question

C, Igi T Cat Igtx, TG et ct Igtxn A z Az A REDP 1. What is equilibrium GDP for a privale, open economy? A. At B. Az C. As D. AS 2. What is equilibrium GDP for a mixed, open economy? Α. Αι B. Az C. As As 3. At a GDP level of Ag, which of the following is true? A. Sul B. Sa+X+T = lg +G+M C. S+T> +X+G D. 3a+M+T = ls +X+G

Answer 1

Answer

1)

the correct answer is (B) A₂

Equilibrium occurs when Y = AE(Aggregate expenditure)

Fr open private economy AE = C + I_g + X_n

where Y = Real GDP(RGDP) , C = consumption, I_g = Investment and X = Net exports.

Thus at equilibrium we have Y = C + I + X_n.

We can see from above above that Y = C + I_g + X_n when RGDP = A₂.

Thus, Equilibrium GDP for a private open economy = A₂

Hence, the correct answer is (B) A₂

2)

The correct answer is (C) A₃

Equilibrium occurs when Y = AE(Aggregate expenditure)

Fr mixed open economy AE = C_a + I_g + G + X_n

where C_a = consumption, I_g = Investment, G = Government spending and X_n = Net exports.

Thus at equilibrium we have Y = C_a + I_g + X_n + G.

We can see from above above that Y = C_a + I_g + X_n + G when RGDP = A₃.

Thus, Equilibrium GDP for a private open economy = A₃

Hence, the correct answer is (C) A₃

3)

The correct answer is (D) S_a + M + T = I_g + X + G

We can see from above that At point A₃, RGDP(Y) = C_a + I_g + X_n + G

=> Y - C_a - T = I_g + X_n + G - T

Private saving(S_a) = Y - C_a - T, X_n = Net Exports = Exports(X) - Imports(M)

=> S_a = I_g + X - M + G - T

=> S_a + M + T = I_g + X + G

Hence, the correct answer is (D) S_a + M + T = I_g + X + G