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What are the future implications for the path of y

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In our simple model, consumption is a function of disposable income, C=C(Y-T). If the increase in G leads to no long-run increase in Y, explain what component of aggregate expenditure must get "crowded out" by the increase in G. Remember your national-income accounting for a closed economy that says: Y = Ca + la + Ga where the "a" subscript denotes "actual" expenditure. What are the future implications for the path of Y* from this reduction in a specific type of expenditure?

Reference no: EM132507014

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