What is the multiplier for credit-nanced government spending

Reference no: EM13190411

Consider a model of the goods market that is described as follows:

C=c0+c1Yd

I=I(bar)+qYd

G=G(bar)

T=t0+t1Y

This means that the government's tax revenues go up if Y is high. (Think of this as a sales tax;
when consumers buy a lot, tax revenue goes up proportionally.)

What is aggregate demand?

Draw the Keynesian Cross diagram of this economy. Carefully label intercept and slope of the aggregate demand curve.

What is the multiplier for credit-nanced government spending? That is what is the effect of an increase in G while T remain unchanged.

What is the multiplier for tax-nanced government spending? That is what is the effect of an increase in G while T increases by the same amount

Reference no: EM13190411

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