Answer to Question #56722 in Macroeconomics for Domenic
Y=Co+Io+Go+Xo-Mo, M=mo+m1yd, C=co+c1yd, T=tY and Yd=Y-T
a) Show that equal change in tax ans government expenditure are expansionary to the economy
b) Derive the equilibrium level of savings in the economy
In the equilibrium savings are equal to investment, so in our case the equilibrium level of savings is S = Io.
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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