ADVANCED ANALYSIS Assume that the consumption schedule for a private open economy is such that consumption C 5 50 1 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 5 30 and X n 5 10. Recall also that, in equilibrium, the real output produced ( Y ) is equal to aggregate expenditures: Y 5 C 1 I g 1 X n . LO4

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?