The table shows a private, open economy.All figures are in billions of dollars. Refer to the above table.If net exports increased by $10 billion at each level of GDP, the equilibrium real GDP would be:
A)$550
B)$600
C)$650
D)$700

Question

The table shows a private, open economy.All figures are in billions of dollars.  Refer to the above table.If net exports increased by $10 billion at each level of GDP, the equilibrium real GDP would be:
A)$550 
B)$600 
C)$650 
D)$700

Quizplus · Accepted Answer

In a private, open economy, the equilibrium level of GDP is determined by the intersection of the aggregate expenditure (AE) line and the 45-degree line. Net exports (NX) is a component of AE, so an increase in net exports would shift the AE line upward. As a result, the equilibrium level of GDP would increase. Looking at the table, we can see that at the initial equilibrium of $600, AE = GDP = $600. To increase AE by $10 billion at each level of GDP, we need to increase net exports by $10 billion, which means that the new value of net exports would be $30 billion. This would shift the AE line upward, crossing the 45-degree line at a higher level of GDP. The new equilibrium GDP would be $650, where AE = GDP = $650.

The Table Shows a Private, Open Economy