Answer to Question #51473 in Microeconomics for ALEXANDER

Question #51473
) 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
1
Expert's answer
2015-03-28T10:42:20-0400
The equal change in tax and government expenditure are expansionary for 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.

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