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Solve the model for the equilibrium income

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Reference no: EM13877565

Consider the following model of income determination: Y = C + I + G0 , C = C0 + bY D , I = I0 + iY T = tY
This model includes a new equation expressing investment as a function of income (induced investment) and an autonomous or exogenous component I0.

(a) Solve the model for the equilibrium income. What is the model multiplier?

(b) What restrictions on the model's parameters are needed in order for the model to have a meaningful multiplier?

Reference no: EM13877565

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