- Q1 Consider The Following Four Sector Keynesian Income Expenditure Multiplier Model Ad Cp 1p G X M Cp Co 1 (83.57 KiB) Viewed 53 times
position.
Explain the central features of the Keynesian income-expenditure
‘multiplier’ model as a theory of the determination of output in
less than 100 words.
Suppose full-employment output is $3200 billion and you are a
fiscal policy advisor to the Federal government. What advice would
you give on the necessary amount of government expenditure (given
taxes) to achieve full-employment output and show how it would work
based on the Keynesian income-expenditure model. What is the
outcome on the budget balance of your policy recommendation?
Q1. Consider the following four-sector Keynesian income-expenditure 'multiplier' model: AD = Cp + 1p + G + X-M = Cp = Co + c(Y-T) Ip = lo G = G. = T = To + tY X = X. M = M. + mY = where Co is autonomous consumption, lo is private investment, G is government expenditure, To is autonomous taxes, X is exports, M is imports, c the marginal propensity to consume out of disposable income, t is the marginal propensity to tax, m is the marginal propensity to import; and 0<c<1,0<t<1 and 0 <m < 1. = = Assume Co = $400 billion, c = 0.6, l. = $620 b., G. = $660 b., Xo = $480 b., T. = $100 b., Mo = $150 b., t = 0.25, and m = 0.2.