ADVANCED ANALYSIS Assume that the consumption schedule for a mixed open economy is such that consumption is:
C=250 +0.8Yd
Assume further that planned investment Ig and net exports Xn are independent of the level of real GDP and constant at lg 50 and Xn
- 30. Lastly, assume government spending G-40 and taxes T-40. Recall also that, in equilibrium, the real output produced (Y) is
equal to aggregate expenditures
Y=C+lg+G+Xn
Given that taxes Tare present, the consumption schedule can be rewritten as
C=250+0.8(Y-T)
Instructions: Enter your answers as whole numbers
a. Calculate the equilibrium level of income or real GDP for this economy.
Equilibrium GDP (M-s[
b. What happens to equilibrium GDP if X changes to 40?
Equilibrium GDP (Y)-SD
What does this outcome reveal about the size of the spending multiplier?
