Keep everything the same as in Test Yourself Question 4 except change investment to I = $1,100. Use the equilibrium condition Y = C + 1 + G + (X - IM) to find the equilibrium level of GDP on the demand side. (In working out the answer, assume the price level is fixed.) Compare your answer to Table and Figure. Now compare your answer to the answer to Test Yourself Question 4. What do you learn about the multiplier?

Figure

Transcribed Image Text:

FIGURE Illustration of the Multiplier 45 C+ I+G+(X-IM) C+G+(X-IM) E1 | S200 billion Eo 6,000 6,800 Real GDP