Equilibrium Level of Income The Consumption and Saving Functions Consumption is the part of income spent on goods and services yielding direct satisfaction. It occupies the biggest chunk of the expenditure on output. Y= C+S Where Y= Income C= Consumption S= Saving Factors Influencing Consumption 1. Distribution of national income 2. Interst rate 3. Desire to hold cash 4. Price level 5. Population 6. Income 7. Taxes 8. Attitudes and values Consumption function is the relationship
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Chapter 5: The Open Economy 1. In a small open economy‚ if exports equal $20 billion‚ imports equal $30 billion‚ and domestic national saving equals $25 billion‚ how much are net capital outflows? Answer:–$10 billion NX = capital flows = 20-30 = -$10b 2. In Micronesia‚ which is a small open economy‚ if exports equal $5 billion and imports equal $7 billion‚ what is Micronesia’s trade balance? Answer: Micronesia has a deficit trade
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F I V E The Open Economy No nation was ever ruined by trade. — Benjamin Franklin Even if you never leave your home town‚ you are an active participant in a global economy.When you go to the grocery store‚ for instance‚ you might choose between apples grown locally and grapes grown in Chile. When you make a deposit into your local bank‚ the bank might lend those funds to your next-door neighbor or to a Japanese company building a factory outside Tokyo. Because our economy is integrated with
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An open economy is the opposite of a managed economy. It is one that is characteristically market-oriented‚ with free market policies rather than government-imposed price controls. In an open economy industries tend to be privately owned rather than owned by the government. In the area of international trade an open economy is one whose policies promote free trade over protectionism. On the other hand‚ a managed or closed economy is characterized by protective tariffs‚ state-run or nationalized
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equation: C = 200 + .5 YD‚ where YD = Y – T and T = 200. a. What is the level of consumption in this economy if YD = 0? Briefly explain how individuals “pay for” this consumption when YD = 0. b. Given the above parameters‚ calculate the level of consumption if Y = 1200. Suppose Y increases to 1300. What happens to the level of YD as Y increases to 1300 (i.e. calculate the change in YD)? What happens to the level of consumption when Y rises to 1300 (i.e. calculate the change in consumption)
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Income Level Income level has an effect on behaviors‚ including what people buy and how much they will pay. According to Bieker‚ consumer spending forms two-third of all spending in the economy. A change in consumer income will result in consumers buying more or less of product at all possible prices and also cause a change in demand and a shift of the demand curve. If the income and savings of consumers are high (the high consumer spending level)‚ their purchase is parallel or even more expensive
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An open economy is an economy in which people‚ including businesses‚ can trade in goods and services with other people and businesses in the international community at large. This contrasts with a closed economy in which international trade cannot take place. The act of selling goods or services to a foreign country is called exporting. The act of buying goods or services from a foreign country is called importing. Together exporting and importing are collectively called international trade.
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Find out the value of equilibrium national income. b) Check if there is a budget deficit or surplus. c) And what about the trade balance? d) What happens if Imports increase of 20? G = 55 M = 10 2. Given C = 40 + 0.5(Y-T) I = 60 G = 55 T = 10 + 0.2Y What is the value of equilibrium income level ? If both autonomous consumption (expenses) and T increase by the same amount‚ equilibrium Y will increase‚ decrease or being unchanged? Why? 3. In a closed economy with C‚ autonomous I and
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percent during the year. 5. The value of your money income‚ in terms of buying goods and services‚ is referred to as your money’s A) staying power. B) rigidity factor. C) purchasing power. D) transaction cost. 6. GDP figures may understate the value of goods and services due to A) the exclusion of the underground economy. B) the inclusion of household production. C) the inclusion of legal non-reported‚ non-taxed income. D) the exclusion of the value of stocks. 7. Which
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The economies of the world have become increasingly globalised and interdependent over the last two decades (Casey & Fair 1999‚ 449). Countries across the world are continuously involved with each other via trade‚ investment‚ communication and travel. Economic events in one country can have repercussions on the economies of other countries‚ as no economy operates in a vacuum or is completely closed. Nearly all economies are open economies (Hubbard et al 2010‚ 614). Openness has given societies
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