(a) Consider a closed economy model below: C = Co + C₁Yd; yd = Y-T; where (i) (ii) (iii) T=To I= bo + bịY; G = 90 +9₁Y. solve for the equilibrium income. solve for the tax multiplier. determine the government expenditure multiplier
(a) Consider a closed economy model below: C = Co + C₁Yd; yd = Y-T; where (i) (ii) (iii) T=To I= bo + bịY; G = 90 +9₁Y. solve for the equilibrium income. solve for the tax multiplier. determine the government expenditure multiplier
Chapter18: The Keynesian Model
Section: Chapter Questions
Problem 9SQP
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Transcribed Image Text:3.
TRUE
Consider a closed economy model below:
C = Co + C₁Yd;
yd = Y-T;
(c)
(d)
where
(i)
(ii)
(iii)
T = To
I= bo + bịY;
G = go + 9₁Y.
solve for the equilibrium incomė.
solve for the tax multiplier.
determine the government expenditure multiplier
(b) In the simple Keynesian model, an increase of Ghel in autonomous
expenditure will cause equilibrium income to increase by a multiple of this
Ghcl increase. Explain the process by which this happens.
IR
With the help of a diagram, explain the Paradox of Thrift.
sing another diagram, show how an increase in savings can lead to an
increase in equilibrium national income when the assumption of constant
interest rates in the Keynesian model is relaxed?
of 2
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