Economicsplease answer this question as soon aspossible2. Multiplier effectsIn this problem, suppose that consumption in the short-run model is given by:C= āc +xÝ,Y(a) What is the interpretation of the parameter a? Explain in terms of PI-LC-H. (3-4 sentences maximum)(b) Derive the IS curve under this modified consumption equation.(c) Suppose that z 0.2. Find the multiplier.(d) Suppose that the economy is in a recession. In order to fight it, G is in-creased from 15% to 19% of potential GDP. What is the change in short-runoutput? What is the change in consumption as a percentage of potentialoutput?

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Answered: 2. Multiplier effects In this problem,…

Advanced Engineering Mathematics

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2. Multiplier effects In this problem, suppose that consumption in the short-run model is given by: G=0,+ zý, Y₁ (a) What is the interpretation of the parameter x? Explain in terms of PI- LC-H. (3-4 sentences maximum) (b) Derive the IS curve under this modified consumption equation.