1. Suppose that a certain country has an MPC of .9 and a real GDP of $400 billion. If its investment spending decreases by $4 billion, what will be its new level of real GDP?

2. KEY QUESTION The data in columns 1 and 2 in the accompanying table are for a private closed economy:

a. Use columns 1 and 2 to determine the equilibrium GDP for this hypothetical economy.

b. Now open up this economy to international trade by including the export and import figures of columns 3 and 4. Fill in columns 5 and 6 and determine the equilibrium GDP for the open economy. Explain why this equilibrium GDP differs from that of the closed economy.

c. Given the original $20 billion level of exports, what would be net exports and the equilibrium GDP if imports were $10 billion greater at each level of GDP?

d. What is the multiplier in this example?

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