Exam 24: National Income and the Current Account

In a Keynesian open-economy income model, an increase in autonomous investment in a Country is likely to lead to what impact (if any) on national income in a trading partner Country?

Suppose that autonomous consumption increases but that, unlike the situation in the simple Keynesian model of this chapter, some of this autonomous consumption increase is spent on imports (say an amount equal to MPM times the autonomous consumption increase) in the "first round" of the multiplier process. What would this mean for the size of the open-economy multiplier in comparison to the open-economy multiplier in the text?

If the "multiplier" in a Keynesian open economy is 2.0, this is consistent with which one of the following combinations of the marginal propensity to consume (MPC) and the marginal propensity to import (MPM)? (Assume that there is no government sector.)

Given the following Keynesian model: =+++- =250 =80+0.75 =100 =- =200 =0.20 =0.30 (a) Calculate the equilibrium level of income and indicate the value of the current account balance when the economy is at its equilibrium income level. (b) Suppose that all equations in the model above stay the same except the size of exports. Calculate the level of exports needed to yield an equilibrium income level that also has X = M, and indicate that resulting equilibrium income level.

If an economy has a marginal propensity to import of 0.3 and the economy's balance-of-trade deficit is 15, how much must the economy contract its GNP if income contraction is to be the method of removing the balance-of-trade deficit?

In a Keynesian model, if MPM = 0.2, MPC = 0.8, and there is no government sector, what will be the ultimate effect of an autonomous increase in investment of 30 on the imports of the country, other things equal?