Assume that the consumption of schedule for a private open economy is such that consumption C = 50 + 0.8Y. Assume 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: Y = 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?© BrainMass Inc. brainmass.com October 10, 2019, 4:05 am ad1c9bdddf
Given C = 50 + 0.8Y, Ig = 30, Xn = 10 and Y = C + Ig + Xn
Simple substitution gives
Y = 50 + 0.8Y + 30 + ...
Microeconomics Advanced Analysis