Answer to Question #56639 in Microeconomics for martha
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. Government Expenditure = Multiplier
c. Derive the equilibrium level of savings in the economy above
b. 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).
c. In the equilibrium savings are equal to investment, so in our case the equilibrium level of savings is S = Io.
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