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Q. Assume that the consumption schedule for a private open economy is such that consumption C = 50 + 0.8Y. Assume further that planned investment Ig also net exports Xn are independent of the level of real GDP also constant at Ig = 30 also Xn = 10. Recall also that, in equilibrium, the real output produced (Y) is equal to aggregate expenditures: Y = C + Ig+ Xn.
a. Compute the equilibrium level of income or real GDP for this economy.
b. Illustrate what occurs to equilibrium Y if Ig changes to 10? Illustrate what does this outcome reveal about the size of the multiplier?
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