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Answer to Question #51033 in Macroeconomics for Paul Muchira

Question #51033
An open macroeconomic model for a hypothetical economy is represented as follows
Y= C0 +Io+Go+X0-M, M=mo+m1yd,C=co+c1yd, T=tY and Yd=Y-T
a. Show that equal change in tax and government expenditure are expansionary to the economy
b. Derive the equilibrium level of savings in the economy above
c. Derive the investment multiplier

Kindly answer me above.
Expert's answer
a. The equal change in tax and government expenditure are expansionary to the economy, because if the government expenditure increases (Go to G1), the GDP will increase too, as Y= C0 +Io+Go+X0-M. So, the equal change in tax and government expenditure will have expansionary effect.
b. In the equilibrium savings are equal to investment, so in our case the equilibrium level of savings is S = Io.
c. Investment multiplier is simply the multiplier effect of an injection of investment into an economy. 
The investment multiplier in our case will be mi = 1/(1 - c) = 1/(1 - c1).

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Comments

Assignment Expert
23.11.15, 20:10

Dear visitor, please use panel for submitting new questions

Adan Musa
17.11.15, 14:15

There are 3 bowls A, B and C contains chips. Bowl A contains two red and four white chips, B contains one red and two white chips and C contains five red four white chips. The probability of selecting the bowls are p(A) = 1/3, P(B) = 1/6 and P(C) = ½. A chip is selected and found to be red. Find the probability that it comes from
i. Bowl A
ii. Either bowl B and C

Assignment Expert
03.03.15, 20:52

Dear visitor, please use panel for submitting new questions

jane
02.03.15, 12:30

(a) An open macroeconomic model for a hypothetical economy is represented as follows

Y= C0 +Io+Go+X0-M, M=mo+m1yd,C=co+c1yd, T=tY and Yd=Y-T

Show that equal change in tax and government expenditure are expansionary to the economy
Derive the equilibrium level of savings in the economy above
Derive the investment multiplier

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