Total disposable income of residents (Yp) is equal to gross income (Y) minus taxes (T) plus net income from international transfers (R). Private sector total saving is income less consumption (i.e. S = Yp â C). Domestic absorption is private sector consumption (C) plus investment (I) plus government expenditure (G). Foreign demand for domestic goods and services is defined as net exports, i.e. export (X) minus import (Z).
If the private sector net savings was zero and the government budget was in surplus of 2%, then which of the following would be true: X=Z or XZ? Explain also why so.
Total disposable income of residents (Yp) is equal to gross income (Y) minus taxes (T) plus net income from international transfers (R). Private sector total saving is income less consumption (i.e. S = Yp â C). Domestic absorption is private sector consumption (C) plus investment (I) plus government expenditure (G). Foreign demand for domestic goods and services is defined as net exports, i.e. export (X) minus import (Z).
If the private sector net savings was zero and the government budget was in surplus of 2%, then which of the following would be true: X=Z or XZ? Explain also why so.
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5. The income approach The following table shows macroeconomic data for a hypothetical country. All figures are in billions of dollars.
National income can also be calculated based on disposable income. Use the following table to derive personal income and national income (in billions of dollars). Specify what needs to be added to disposable income to arrive at personal income, and explain how personal income should be adjusted to find national income.
National income is the total amount earned by the citizens of a country, while gross domestic product is the total value of goods and services produced within a country. To determine the gross domestic product, you have to make some adjustments to national income. Use the following table to derive gross domestic product and, as part of the process, net domestic product (NDP) (in billions of dollars). Again, specify what should be added to and subtracted from national income to arrive at the net domestic product, and what should be added to the net domestic product to arrive at the gross domestic product.
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Assume that the equations below describe the expenditures within a particular macroeconomy and that these equations conform to the assumptions we've made in the lecture regarding the fixed price level Aggregate Expenditure model. All values for expenditure and income are dollar amounts, but for simplicity, we've dropped the $ below.
| C = 0.8(DI) + 1000 | C = Consumption expenditure, DI = Disposable Income |
| I = 2000 | I = Investment expenditure |
| G = 1000 | G = government expenditure |
| X = 1600 | X = spending on exports |
| M = 1800 | M = spending on imports |
| DI = Y - T | Y = real GDP, T = tax revenues/> |
| T = 1000 | |
| Yp = 12000 | Yp = Potential GDP |
Given the equations above, we can describe the GDP, government budget, and net exports in this economy. Select three characteristics from the list below which accurately describe this economy. Note that there is no partial credit on this question. I.e., your answer will either be all correct, or all wrong.
| a. |
inflationary gap |
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| b. |
recessionary gap |
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| c. |
no output gap |
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| d. |
government budget surplus |
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| e. |
government budget deficit |
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| f. |
balanced government budget |
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| g. |
trade deficit |
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| h. |
trade surplus |
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| i. |
net exports of zero |
