(Answered) Suppose the economy is given bynbspcc0 c1y-ttt0 t1ynbspi

Engineering

Suppose the economy is given by:

C=c0 + c1(Y-T)

T=t0 + t1Y

I= i

G=T

with 0 < c1 < 1, 0 < t1 < 1

a. What is the expression for equilibrium output. What is the multiplier?

b. Suppose that G=G(Bar) (G is an exogenous constant). What is an expression for equilibrium output and the multiplier. Is it larger, smaller or equal to the multiplier derived in part a?

c. how is answer to b. related to where the balanced budget requirement is destabilizing? Is the economy more stable when G=T or when G=G(bar)?

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