In the above example, if exports change to X = 100, find the change in equilibrium income and the net export balance.

Question

Philoid · Accepted Answer

Given –

C = 40 + 0.8 YD

T = 50

I = 60

G = 40

X = 100

M = 50 + 0.05Y

Equilibrium Income (Y) = A / 1 – c + m

A = C – cT + I + G + X - M

Y = C – cT + I + G + X - M/1 – c + m

= 40 – (O.8 X 50) + 60 + 40 + 100 – 50 / 1 – 0.8 + 0.05

= 190 – 40 / 0.25

= 150 / 0.25

= 600

Net export balance NX = X - M - 0.05Y

= 100 – 50 – (0.05 X 600)

= 20