Given a hypothetical consumption function of the form: C = a + bYd Where Yd = Y – T And Y = Income ...

Given a hypothetical consumption function of the form:
C = a + bYd

Where Yd = Y – T
And Y = Income
T = Taxes and that:
Government spending and investment are exogenously determined at G and I respectively: Determine Government Spending
Multiplier.

Answers

The first equation in this system gives the equilibrium condition for national income, while the second
equation shows how C is determined in the model.

Parameters: (a) is positive because consumption is positive even if disposable income (Y – T) is zero;
(c) Is a positive fraction because it represents the marginal propensity to consume (mpc)
Exogenous variables: The exogenous variables Io (Investment) and Go (Government Spending) are, of course, non negative.
All the parameters and exogenous variables are assumed to be independent of one another, so that any one of them can be assigned a specific new value without affecting the others.

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Wilfykil answered the question on February 7, 2019 at 05:21

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