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What is the magnitude of the change in national income

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Assignment:

Answer the following question:

(a) Using the Keynesian Cross, explain how a tax increase, ?T, affects nation income. Using the appropriate multiplier, what is the magnitude of the change in national income, ?Y. What is the change in consumption and the change in investment?

Explain. (Hint: for investment, what are we treating as exogenous in this model?)

(b) Use the IS-LM model to analyze the effect of the policy in part (a). How does the change in national income compare to what you found in part (a)? What accounts for the difference? How does the change in consumption compare to what you found in part (a)?

Reference no: EM133469322

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