Consider the three-sector macroeconomic model Y = C + I + G C = aY d + b (0 < a < 1, b > 0) Yd = Y − T T = T* (T* > 0) I

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Consider the three-sector macroeconomic model
Y = C + I + G
C = aY
d + b (0 < a < 1, b > 0)
Yd
= Y − T
T = T* (T* > 0)
I = I* (I* > 0)
G = G* (G* > 0)
(a) Show that
(b) Write down expressions for the government expenditure
multiplier, ∂Y/∂G*, and
the taxation multiplier, ∂Y/∂T*, and deduce that
if both government expenditure
and taxation increase by 1 unit, then the equilibrium value of
income also rises by
1 unit, irrespective of the value of a.
(c) State the value of the balanced budget multiplier.