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Assume that the consumption schedule for a private open economy is such that consumption is
C = 100 + 0.9Y
Assume further that planned investment Ig, government spending G and net exports Xn are independent of the level of income. Ig = 60, G = 0 and Xn = 10. Recall also that, in equilibrium, the real output produced (Y) is equal to aggregate expenditures
Y = C + Ig + G + Xn
Instructions: Round your answers to the nearest whole number.
a. Calculate the equilibrium level of income or real GDP for this economy.
Equilibrium GDP (Y) =
b. What happens to equilibrium GDP if Ig changes to 40?
What does this outcome reveal about the size of the multiplier?
Multiplier =
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