What factors will influence the equilibrium effect of change

Reference no: EM13222298

Suppose the economy is characterized by the following equations:

C =c0+c1(Y-T) 0<c1<1

T =t0+t1Y 0<t1<1

I =b0+b1Y 0<b1<1

b1 + c1 < 1, G is fixed and there is no international trade.

Although this is an admittedly simple model, it illustrates some issues that policy mak- ers need to think about when changing fiscal policy (e.g. a reduction in the budget deficit through a reduction in government spending). Explain in words what factors will influence the equilibrium effect of a change in fiscal policy according to our model.

Reference no: EM13222298

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