Question: C = 10 + 0.9 (Y-T), I = 80, G = 65, and T = 50
Imports and exports are given by:
IM = 0.3Y and X = 0.2Y*
Foreign income (Y*) = 1000
(a) Draw representative graphs of the goods market and net-exports. Draw your graphs to illustrate the trade balance at the equilibrium level of output.
(b) What happens to equilibrium output and the trade balance if foreign income increases to 1200? Show the impact of this change on the graphs that you drew in part c.