Solution-Government spending is endogenous in the model

Government spending is endogenous in the model

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Reference no: EM13879109

1.Imagine an economy in which the government spent all its tax revenues, but was prevented from spending any more; thus G = t x Y, where It is the tax rate.

a. Explain why government spending is endogenous in the model.
b. Is the multiplier larger or smaller than the case in which government spending is exogenous?
c. When t increases, does Y increase, decrease, or stay the same?

Reference no: EM13879109

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The government spent all its tax revenues : 1.Imagine an economy in which the government spent all its tax revenues, but was prevented from spending any more; thus G = t x Y, where It is the tax rate.

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Government spending is endogenous in the model

Reference no: EM13879109

Reference no: EM13879109

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