Q. The following equations describe a small open economy. Figures (except the parameters) are in millions of dollars. C = Co + cYD (Private consumption) YD = Y + TR - T Private disposable income) T = tY (Total taxes) G = Go, TR = TRo (Gov. expenditure and transfer payments, respectively) I = Io + zY (Private investment) X = Xo (Total exports) IM = IMo + mY (Total imports) Y = C + I + G + X - M (Equilibrium condition) Endogenous Variables: C, YD, T, IM, I and Y Exogenous Variables: Co = 250, Io = 280, Go = 170, TRo = 120, Xo = 230, IMo = 120 Parameters: c = 0.85, t = 0.20, z = 0.10, m = 0.15
Policy Variables: Fiscal Policy (G, t and TR) Monetary Policy (None)
Calculate the equilibrium level of output (Y*).