Macroeconomics 20th Edition by Campbell McConnell,Stanley Brue,Sean Flynn

Exercise 35

Advanced Analysis Assume that the consumption schedule for a private open economy is such that consumption C = 50 + 0.8 Y. 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?