In the aggregate demand model in equilibrium, GDP (Y) = C + I + X (open economy).
Where C = consumption schedule = 100 + .75Y (consumption is a function of income).
Where I = planned investment = 20 and X = net exports = 40. Both are independent of GDP (Y).
Use the information provided above to complete the following:
Calculate the equilibrium level of income or real GDP for this economy.
What happens to equilibrium Y if Ig changes to 15? What does this outcome reveal about the size of the multiplier?