AD-AS Open Economy Model
The following equations describe a small open economy. Figures (except for parameters) are in millions of dollars.
C = Co + cYD (Private consumption)
YD = Y + TR - T (Private disposable income)
T = To + tY (Total taxes)
I = Io + zY (Private investment)
G = Go, TR = TRo (Gov. exp and Transfers)
X = Xo (Total exports)
IM = IMo+mY (Total imports)
Y = C + I + G + X-IM (Goods Market Equilibrium condition)
Endogenous Variables: C, YD, T, IM, Y, I and Y
Exogenous Variables: Co = 300, To = 80, Io = 250, Go = 100, TRo = 150, IMo =120,
Xo = 220,
Parameters: c = 0.8, t = 0.2, z = 0.14, m = 0.16
Policy variables: Fiscal policy: (G, t and TR), Monetary policy: (N/A)
Questions:
i) Calculate the equilibrium level of output in the model.
ii) Calculate the values of other endogenous variables and construct and complete the NAM (National Income Accounting Matrix) such as given on page 2.6 of your study guide. You must show how you calculate values of endogenous variables in the model.