Assume that the consumption schedule for a mixed open economy is such that consumption is: C = 250 + 0.8Yd Assume further that planned investment Ig and net exports Xn are independent of the level of real GDP and constant at Ig = 50 and Xn = 30. Lastly, assume government spending G = 40 and taxes T = 40. Recall also that, in equilibrium, the real output produced (Y) is equal to aggregate expenditures: Y = C + Ig + G + Xn Given that taxes T are present, the consumption schedule can be rewritten as: C = 250 + 0.8(Y - T) Instructions: Enter your answers as whole numbers. a. Calculate the equilibrium level of income or real GDP for this economy. Equilibrium GDP (Y) = $ . b. What happens to equilibrium GDP if Xn changes to 40? Equilibrium GDP (Y) = $ . What does this outcome reveal about the size of the spending multiplier? Spending multiplier = .
ADVANCED ANALYSIS Assume that the consumption schedule for a mixed open economy is such that consumption is:
C = 250 + 0.8Yd
Assume further that planned investment Ig and net exports Xn are independent of the level of real
Y = C + Ig + G + Xn
Given that taxes T are present, the consumption schedule can be rewritten as:
C = 250 + 0.8(Y - T)
Instructions: Enter your answers as whole numbers.
a. Calculate the equilibrium level of income or real GDP for this economy.
Equilibrium GDP (Y) = $ .
b. What happens to equilibrium GDP if Xn changes to 40?
Equilibrium GDP (Y) = $ .
What does this outcome reveal about the size of the spending multiplier?
Spending multiplier = .
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