Macroeconomics + Economy 2009 Update 18th Edition by Campbell McConnell, Sean Masaki Flynn,Stanley Brue

Exercise 4

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 I g and net exports X n are independent of the level of real GDP and constant at I g = 30 and X n = 10. Recall also that, in equilibrium, the real output produced ( Y ) is equal to aggregate expenditures: Y = C + I g + X n.
a. Calculate the equilibrium level of income or real GDP for this economy.
b. What happens to equilibrium Y if I g changes to 10 What does this outcome reveal about the size of the multiplier