Problem: Assume that the consumption 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 = C + Ig + Xn.
1. Calculate the equilibrium level of income or real GDP for this economy.
2. What happens to equilibrium Y if Ig changes to 10? What does this outcome reveal about the size of the multiplier?