Assume that the consumption schedule for a private open economy is such that consumption is as follows:
C = 50 + 0.9 Y
Assume further that planned investment Ig and net exports Xn are independent of the level of real GDP and constant at:
Ig = 30
Xn = 10
Recall also that, in equilibrium, the real output produced (Y) is equal to aggregate expenditures: Y = C + Ig + Xn.
a. What is 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?