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Assume that the consumption schedule for a private open economy is such that consumption C=50+0.8Y. Assume further that planned investment Ig and net exports Xn are independent of the levelof real GDP and constant at Ig=30 and Xn=10. Recall also that, in equilibrium, the real output produced (Y) is equal to aggregate expenditures: Y=C+Ig+Xn.

A.) Calculate the equilibrium level of income or real GDP for this economy.

B.) What happens to the equilibrium Y if Ig changes to 10? What does this outcome reveal about the size of the multiplier?

Econometrics, Economics

  • Category:- Econometrics
  • Reference No.:- M9479697

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