Table 20-1
Suppose the economy of Macroland is described by the following:
C = 200 + .8DI (DI = disposable income)
I = 300 + .2Y − 50r (Y = GDP)
(r, the interest rate, is measured in percentage points.For example, a 9 percent interest rate is r = 9).
For this economy, assume that the Federal Reserve uses its monetary policy to peg the interest rate at
r = 5
G = 750
T = .25Y
X = 200
M = 150 + .2Y
Hint: DI = Y − T
-From Table 20-1, find the trade deficit or surplus.
A)475 deficit
B)75 deficit
C)75 surplus
D)475 surplus

Question

Table 20-1
Suppose the economy of Macroland is described by the following:
C = 200 + .8DI (DI = disposable income)
I = 300 + .2Y − 50r (Y = GDP)
(r, the interest rate, is measured in percentage points.For example, a 9 percent interest rate is r = 9).
For this economy, assume that the Federal Reserve uses its monetary policy to peg the interest rate at
r = 5
G = 750
T = .25Y
X = 200
M = 150 + .2Y
Hint: DI = Y − T
-From Table 20-1, find the trade deficit or surplus.
A)475 deficit 
B)75 deficit 
C)75 surplus 
D)475 surplus

Quizplus · Accepted Answer

The trade balance is calculated as exports (X) minus imports (M). Given X = 200 and M = 150 + 0.2Y, we first need to find Y. Using the given equations and substituting r = 5, we solve for Y and find the trade balance. The result is a trade deficit of 475.

Table 20-1 Suppose the Economy of Macroland Is Described by the Following