8. advanced analysis Assume that the consumption schedule for a private open economy is such that consumption C =

50 + 0.8Y. 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. LO11.7

a. Calculate the equilibrium level of income or real GDP for this economy.1

b. What happens to equilibrium Y if Ig changes to 10? What does this outcome reveal about the size of the multiplier?

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(1) Real Domestic Output (GDP = DI), Billions (2) Aggregate Expenditures, Private Closed Economy, (3) Exports, (4) Imports, (5) Net Billions Billions Billions Exports, Billions $200 $240 $20 $30 250 280 20 30 300 320 350 360 400 400 450 500 440 480 550 520 2222220 30 30 30 30 30 30 (6) Aggregate Expenditures, Private Open Economy, Billions