The behavioral functions are given as follows. C = 20 + 0.8(Y − T); I = 14; G = 20; T = 10; IM = 0.5Y; X = 0.1Y*; Y* = 100where Y is domestic income; Y* is foreign income; C is consumption; T is tax; I is investment; G is government spending; IM is import; X is export.
(A) Calculate the equilibrium level of output in closed economy.
(B) Calculate the equilibrium level of output in open economy case. Is this economy runningtrade deficit or surplus?
(C) Calculate the multiplier for closed economy case & for open economy case. Explain why the multipliers are different in two cases (I need an intuitive explanation).