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Determine the model''s government expen- diture multiplier

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Reference no: EM13876676

Consider the following national income determination model for a close economy:

C = 220 + 0.84YD
I = 130 + 0.09YD - 20.5r0
T = 85 + 0.12Y

where r0 is the interest rate. Assume the government expenditure G0 is 100 and
r0 = 4.2.

(a) Write the model in matrix form and determine the equilibrium values of national income, consumption, investment, and tax.

(b) From the matrix of coefficients, determine the model's government expen- diture multiplier and tax multiplier.

(c) Assume the government expenditure changes to 90. Determine the new equilibrium values of Y, C, I and T .

Reference no: EM13876676

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