Let aggregate national income be given by Yt = Ct + It + Gt Where C, I and G are consumption, investment and government expenditure. A that consumption is given by C: = mY; Investment is given by I; = i + a(Yt-1 – Y;-2) And government expenditure declines over time according to G2 = Go(1 – 8)', 0<8<1 0 < 8 < 1

Algebra & Trigonometry with Analytic Geometry
13th Edition
ISBN:9781133382119
Author:Swokowski
Publisher:Swokowski
Chapter7: Analytic Trigonometry
Section7.6: The Inverse Trigonometric Functions
Problem 91E
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b) Let aggregate national income be given by
Y; = Ct + It + Gt
Where C, I and G are consumption, investment and government expenditure. Assume
that consumption is given by
Ct = mY;
Investment is given by
Iį = i + a(Yt-1 – Yt-2)
And government expenditure declines over time according to
G; = Go(1 – 8)*,
0 < 8 < 1
Where d is the exogenous rate of decline of government expenditure
(i)
Derive the linear second order difference equation.
(ii)
Solve the difference equation.
Transcribed Image Text:b) Let aggregate national income be given by Y; = Ct + It + Gt Where C, I and G are consumption, investment and government expenditure. Assume that consumption is given by Ct = mY; Investment is given by Iį = i + a(Yt-1 – Yt-2) And government expenditure declines over time according to G; = Go(1 – 8)*, 0 < 8 < 1 Where d is the exogenous rate of decline of government expenditure (i) Derive the linear second order difference equation. (ii) Solve the difference equation.
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