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Suppose that consumption schedule for a private open economy is such that consumption C=50+0.8Y. Suppose further that planned investment Ig and net exports Xn are independent of the level of 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 = C + Ig + Xn.

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

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

 

Macroeconomics, Economics

  • Category:- Macroeconomics
  • Reference No.:- M9294645

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