EXERCISE 3.51. Given the following model:Y = C÷lo+GoC = a + b(YT) (a> 0,T = d+tY(d>0,0 < b < 1) [T: taxes]0 0, 0

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1. Given the following model: Y = C÷lo+Go C = a + b(Y-T) T = d+tY (a> 0, (d> 0, 0 < b < 1) [T: taxes] 0

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Question

EXERCISE 3.5
1. Given the following model:
Y = C÷lo+Go
C = a + b(YT) (a> 0,
T = d+tY
(d>0,
0 < b < 1) [T: taxes]
0<t< 1) [t: income tax rate]
(a) How many endogenous variables are there?
(b) Find Y*, T*, and C*.
2. Let the national-income model be:
Y = C + 10 + G
(=a-b(Y - To)
G=gY
(a) Identify the endogenous variables.
(b) Give the economic meaning of the parameter g.
(c) Find the equilibrium national income.
(a > 0, 0<b< 1)
(0 < g < 1)
(d) What restriction on the parameters is needed for a solution to exist?
3. Find Y and C* from the following:
Y=C+lo+Go
C = 25+6Y1/2
lo = 16
Go = 14

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