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Ch. 18: Global Macro
1.
Assume that the following information (in millions of dollars) refers to
Mozambique:
C (consumption) = $2,000 + 0.75Y
I (investment) = $12,000
G (government spending) = $24,000
X (exports) = $3,000
IM (imports) = 0.25Y
T (taxes) = $0
a) What is the value of equilibrium GDP?
b) As a result of lower interest rates, business investment increased by $100
million, what impact will this have on equilibrium GDP? Assume prices in this
economy are constant.
2.
a) If the marginal propensity to save in a closed economy is 0.40, what is the
value of the multiplier?
b) If this same economy opens up to trade and exhibits a marginal propensity to
import of 0.10, what does the value of the multiplier become?
3.
If it takes 64 farm workers to harvest one ton of strawberries and 8 farm workers to
harvest one ton of corn, what is the opportunity cost of ten tons of strawberries?
4.
Assume that U.S. can produce Toyotas at a cost of $9,000 per car and Chevrolets at
$18,000 per car. In Japan, Toyotas can be produced at 1,000,000 yen and Chevrolets at
500,000 yen. A) In terms of Chevrolets, what is the opportunity cost of producing
Toyotas in each country?
5.
For the problem above, who has a comparative advantage in producing Toyotas and what
should be the mutually beneficial limits to the terms of trade for Toyotas?