We have the following model: (1) Y = C + I + G + X - Q (2) C = zC + c1 (Y - T) 0 ˂ c1 ˂ 1 (3) I = zI + b1Y 0 ˂ b1 ˂ 1 (4

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We have the following model:
(1) Y = C + I + G + X - Q
(2) C = zC + c1 (Y - T) 0 ˂ c1 ˂ 1
(3) I = zI + b1Y 0 ˂ b1 ˂ 1
(4) T = zT + tY 0 ˂ t ˂ 1
(5) Q = aY 0 ˂ a ˂ 1
Here, Y, C, I, T and Q are endogenous. G, t, zT and X are
exogenous.
The equilibrium value for GDP is:
(6) Y = 1
1 − c1 (1 − t) −b1 + a (zC - c1zT + zI + G + X)
a) Explain the relationship (5)
b) What will be the effect on GDP of tax cuts; i.e. at ΔzT ˂
0?
c) Compare the multiplier in question a) in part 1 and in question
b) in part 2 and
comment on the difference.