4. Consider the economy is characterised by the following equations: C = Co + CYD T = to +tįY ti € (0,1) Y] = Y-T G and

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4 Consider The Economy Is Characterised By The Following Equations C Co Cyd T To Tiy Ti 0 1 Y Y T G And 1 (74.35 KiB) Viewed 59 times

4. Consider the economy is characterised by the following equations: C = Co + CYD T = to +tįY ti € (0,1) Y] = Y-T G and I are both constant. (a) Find the multiplier. (5 marks) (b) Does the economy respond more to changes in autonomous consumption (co), when t1 is zero or positive? Explain your answer. (5 marks) (c) Now assume that taxes are lump sum (constant, i.e., T = T), but investment increases with output through the equation I = bo + bịY, what is the new multiplier? (5 marks) (d) Suppose that the parameter be increases. If we call this parameter the "business confidence", how will equilibrium output be affected by increasing the business confidence? Will total savings go up by this change? Explain your answer. (5 marks)