Z means PAE in our model: Z=Cp+Ip+G Cp=c0+c1(Y-T) T=Tbar Ip=Ibar G=Gbar a. derive the income-expenditure multipliers...

Z means PAE in our model:

Z=Cp+Ip+G

Cp=c0+c1(Y-T)

T=Tbar

Ip=Ibar

G=Gbar

a. derive the income-expenditure multipliers with respect to Ip, G and T

b. Given that c0=100, c1=0.8, Ip=500, G=200, T=200, what will be the equilibrum level of income and the values of the multipliers of part (a) above?

c. Consider the effect on income of an increase in private investment of 100. what would be the effect on the government's budget balance and why?

Expert Solution

Rahul Sunny answered 2 years ago

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