1. a) Calculate the equilibrium GDP of a Keynesian demand driven closed economy with autonomous investment and government expenditure. Derive the Balanced Budget Multiplier. b) Now relax the assumption on autonomous investment. Introduce the investment function I = I,-Or, wherer is the real interest rate. Derive the IS curve. If the LM M curve in this economy is = aY – Br then derive the equilibrium output. Derive the P - multiplier effect and explain. Would there be a crowding out?

1. a) Calculate the equilibrium GDP of a Keynesian demand driven closed economy with autonomous investment and government expenditure. Derive the Balanced Budget Multiplier. b) Now relax the assumption on autonomous investment. Introduce the investment function I = I,-Or, wherer is the real interest rate. Derive the IS curve. If the LM M curve in this economy is = aY – Br then derive the equilibrium output. Derive the P - multiplier effect and explain. Would there be a crowding out?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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