Answer to Question #259688 in Microeconomics for askt

Question

How does equilibrium value change in open economy when IM=.25Y, and X=500

Answer 1

Solution:

At equilibrium: Y = X – M

Y = 500 – 0.25Y

Y – 0.25Y = 500

0.75Y = 500

Y = 667

The equilibrium value will change with an increase or decrease in imports (IM) and exports (X).