ADVANCED ANALYSIS Assume that the consumption schedule for a private open economy is such that consumption is: C = 50 + 0.9Y. 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 + G + Xn. Instructions: Round your answers to the nearest whole number. a. What is the equilibrium level of income or real GDP for this economy? Equilibrium GDP (Y) = $. b. What happens to equilibrium Y if Ig changes to 10? Equilibrium GDP (Y) = $. What does this outcome reveal about the size of the multiplier? Multiplier = .
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Given: C = 50 + 0.9Y Ig = 30 Xn = 10 Y = C + Ig + G + Xn Substitute the values of C, Ig, and Xn into the equation for Y: Y = 50 + 0.9Y + 30 + 0 + 10 Y = 90 + 0.9Y + 10 Y = 100 + 0.9Y 0.1Y = 100 Y = 1000 Therefore, the equilibrium level of income or real GDP for Show more…
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