Rework Figure 1 assuming a closed economy (net exports equal zero at all levels of income). What is the equilibrium level of real GDP? What is the spending multiplier?

Transcribed Image Text:

FIGURE 1 The Equilibrium Level of Real GDP (1) Real GDP (Y) (2) (3) (4) Government (5) Net (6) Aggregate (7) Unplanned Consumption Investment Spending Exports Expenditures (C) (1) (G) (X) (AE) Change in Inventories (8) Change in Real GDP $30 $50 $70 $50 $200 -$200 Increase $100 $100 $50 $70 $40 $260 -$160 Increase $200 $170 $50 $70 $30 $320 -$120 Increase $300 $240 $50 $70 $20 $380 -$80 Increase $400 $310 $50 $70 $10 $440 -$40 Increase $500 $380 $50 $70 $0 $500 $0 No change $600 $450 $50 $70 -$10 $560 $40 Decrease $700 $520 $50 $70 -$20 $620 $80 Decrease Expenditures (AE) (dollars) 700 600 AE Y Income Rises 400 AE 300 88 200 100 0 45 100 200 300 400 500 600 700 Real GDP (Y) (dollars)