Suppose the goods market is represented by the following behavioural equations.
C = 500 + 0.5YD I = 500 - 2000r + 0.1Y G = 500
X = 0.1Y* + 100e Q = 0.1Y - 100e T = 400
Y* = 1000 r = 0.05 (5%) e = 1
Z = C + I + G + X - eQ Y = Z in equilibrium
a. Calculate equilibrium GDP (Y).
b. Given your answer in a, calculate C, I, X and Q.
c. At this level of output, is the economy experiencing a trade surplus or deficit?
d. Suppose G increases by 100 (to 600). Calculate the new equilibrium level of output. What is the size of the multiplier?
e. Based on your answer to d, calculate the new level of Q. Calculate the change in net exports caused by this increase in G.