Question 1

In an open economy,the marginal propensity to consumer is 0.75,and the marginal propensity to import is 0.15.Calculate the change in equilibrium GDP if exports fall by $50 billion.

Accepted Answer

The answer of In an open economy,the marginal propensity to...

Question 2

In what way does the automatic income adjustment mechanism differ from the traditional or classical adjustment mechanism?

Accepted Answer

The answer of In what way does the automatic income...

Question 3

In the Keynesian model,in short-run equilibrium,the trade balance must be
A) positive.
B) equal to zero.
C) negative.
D) could be positive, negative, or equal to zero.

Accepted Answer

In the Keynesian model, the trade balance in short-run equilibrium can vary depending on factors like domestic and foreign demand, exchange rates, and fiscal policies, so it could be positive, negative, or zero.

Question 4

What are some of the disadvantages of a freely flexible exchange rate system with respect to the adjustment process?

Accepted Answer

The answer of What are some of the disadvantages of...

Question 5

.If the MPC=0.8 and the MPM=0.05,a $100 million increase in exports will lead to:
A) a $400 million increase in equilibrium GDP.
B) a $400 million decrease in equilibrium GDP..
C) a $500 million increase in equilibrium GDP.,
D) a $500 million increase in equilibrium GDP

Accepted Answer

The multiplier is 1/(1-MPC-MPM) = 1/(1-0.8-0.05) = 1/0.15 = 6.67. So, a $100 million increase in exports will lead to a $100 million * 6.67 = $667 million increase in equilibrium GDP.

Question 6

An open economy can be described by the following functions (all figures in millions of dollars):
C = 500 + 0.8Y
I = 600
X = 400
M = 200 + 0.05Y
Calculate equilibrium income and the trade balance.

Accepted Answer

The answer of An open economy can be described by...

Question 7

According to the absorption approach,under what conditions will a competitive devaluation fail to reduce a balance of payments deficit?

Accepted Answer

The answer of According to the absorption approach,under what conditions...

Question 8

Why is the foreign trade multiplier smaller in a large nation relative to small nation?

Accepted Answer

The answer of Why is the foreign trade multiplier smaller...

Question 9

Why is the foreign trade multiplier smaller than the corresponding multiplier in a closed economy?

Accepted Answer

The answer of Why is the foreign trade multiplier smaller...

Question 10

If MPC=0.8 and MPM=0.05,the foreign trade multiplier is:
A) 5
B) 4
C) 3
D) 2

Accepted Answer

The foreign trade multiplier formula is:

FTM = 1 / (1 - MPC + MPM)

FTM = 1 / (1 - 0.8 + 0.05) = 1 / 0.25 = 4

Therefore, the best choice is B.

Quiz 17: The Income Adjustment Mechanism and Synthesis of Automatic Adjustments

In an open economy,the marginal propensity to consumer is 0.75,and the marginal propensity to import is 0.15.Calculate the change in equilibrium GDP if exports fall by $50 billion.

In what way does the automatic income adjustment mechanism differ from the traditional or classical adjustment mechanism?

In the Keynesian model,in short-run equilibrium,the trade balance must be

What are some of the disadvantages of a freely flexible exchange rate system with respect to the adjustment process?

.If the MPC=0.8 and the MPM=0.05,a $100 million increase in exports will lead to:

An open economy can be described by the following functions (all figures in millions of dollars): C = 500 + 0.8Y I = 600 X = 400 M = 200 + 0.05Y Calculate equilibrium income and the trade balance.

According to the absorption approach,under what conditions will a competitive devaluation fail to reduce a balance of payments deficit?

Why is the foreign trade multiplier smaller in a large nation relative to small nation?

Why is the foreign trade multiplier smaller than the corresponding multiplier in a closed economy?

If MPC=0.8 and MPM=0.05,the foreign trade multiplier is: