Question #60991

2.Assume the following information represents the National Income Model of a hypothetical economy.
Y = C + I + G,C = a + b(Y – T),T = d + tY, I = I0,G = G0
Where a > 0; 0 < b < 1,d > 0; 0 < t < 1,T = Taxes, I = Investment ,G = Government Expenditure
Explain the economic interpretation of the parameters a,b,d and t.
Find the expression of equilibrium income, consumption and taxes

Expert's answer

a – autonomous consumption, which is independent on disposable income;

b – slope of the consumption function;

d – constant autonomous lump-sum tax;

t – rate/proportion of income tax.

An expression, which determines income, consumption and taxes at equilibrium:

Y̅ = 1/1-b x (a - bT + I + G)

b – slope of the consumption function;

d – constant autonomous lump-sum tax;

t – rate/proportion of income tax.

An expression, which determines income, consumption and taxes at equilibrium:

Y̅ = 1/1-b x (a - bT + I + G)

## Comments

Assignment Expert24.09.19, 15:47Dear visitor,

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Oluwakayode Ademola24.09.19, 03:51The equations describing desired consumption (C^d)

and desired Investment (I^d) are given as follows:

C=C0+C1(Y-T)-C2r

I= t0 +tY

I =I0 -I1r.

Where Y= disposable Income

C0, C1, C2 I0 and I1 are positive numbers

Hint: Y=C^d +I^d +G

is provide an expression for the Iscane

using appropriate illustrations, explain the relationship

between taxes and the desired Capital Stock

Assignment Expert24.03.18, 14:25Dear visitor,

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mesh24.03.18, 12:09in a certain economy marginal propensity to save is 0.2 and the autonomous consumption is 400

a)formulate consumption function

b)if the government expenditure is to increase were to increase by 50% what would be the resultant change in national income

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