ADVANCED ANALYSIS Assume that the consumption schedule for a private open economy is such that consumption is:
C = 100+ 0.75Y
Assume further that planned investment Ig and net exports X, are independent of the level of real GDP and constant at /g= 60 and Xn
= 10. Recall also that, in equilibrium, the real output produced (Y) is equal to aggregate expenditures:
Y=C+lg+Xn
Instructions: Round your answers to the nearest whole number.
a. What is the equilibrium level of income or real GDP for this economy?
Equilibrium GDP (Y=$|
b. What happens to equilibrium Y if Ig changes to 40?
Equilibrium GDP (Y)=$[
What does this outcome reveal about the size of the spending multiplier?
Spending multiplier =
