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Outcome reveal about the size of the multiplier

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Reference no: EM131053807

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

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

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

Reference no: EM131053807

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