Assume that consumption schedule for private open economy

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Assume that the consumption schedule for a private open economy is such that consumption C = 20 + 0.75Y. Assume further that planned investment (Ig) and net exports (Xn) are independent of the level of real GDP and constant at Ig = 40, G =20 and Xn = 10. Recall also that, in equilibrium, the real output produced (Y) is equal to aggregate expenditures: Y = C + Ig + G+ Xn. a. Calculate the equilibrium level of income or real GDP for this economy. b. What happens to equilibrium Y if G changes to 40? What does this outcome reveal about the size of the multiplier? What does this outcome reveal about the impact of fiscal policy?

Reference no: EM131161244

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