# Microeconomics Advanced Analysis

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?

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#### Solution Preview

Given C = 50 + 0.8Y, Ig = 30, Xn = 10 and Y = C + Ig + Xn

Simple substitution gives

Y = 50 + 0.8Y + 30 + ...

#### Solution Summary

Microeconomics Advanced Analysis

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