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7. Given the mathematical model below, solve for a) the expenditure multiplier for government spending, G; and b) for the AD curve in P-Y space. In the model Y = GDP, C = consumption, I = investment, G = government spending, P = price level, r = real interest rate, T = consumer taxes, b = marginal propensity to consume, = proportional price level impact on consumption, t = proportional income impact on taxes, e = proportional real interest rate impact on investment Y C+I+G C=Cob(YT) - OP I = 10-er T = To+tY G = Go

7. Given the mathematical model below, solve for a) the expenditure multiplier for government spending, G; and b) for the AD curve in P-Y space. In the model Y = GDP, C = consumption, I = investment, G = government spending, P = price level, r = real interest rate, T = consumer taxes, b = marginal propensity to consume, = proportional price level impact on consumption, t = proportional income impact on taxes, e = proportional real interest rate impact on investment Y C+I+G C=Cob(YT) - OP I = 10-er T = To+tY G = Go

MACROECONOMICS
MACROECONOMICS
14th Edition
ISBN:9781337794985
Author:Baumol
Publisher:Baumol
Chapter11: Managing Aggregate Demand: Fiscal Policy
Section: Chapter Questions
Problem 1TY
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7. Given the mathematical model below, solve for a) the expenditure multiplier for government spending, G; and b) for the AD curve in P-Y space. In the model Y = GDP, C = consumption, I = investment, G = government spending, P = price level, r = real interest rate, T = consumer taxes, b = marginal propensity to consume, = proportional price level impact on consumption, t = proportional income impact on taxes, e = proportional real interest rate impact on investment Y C+I+G C=Cob(YT) - OP I = 10-er T = To+tY G = Go
Transcribed Image Text:7. Given the mathematical model below, solve for a) the expenditure multiplier for government spending, G; and b) for the AD curve in P-Y space. In the model Y = GDP, C = consumption, I = investment, G = government spending, P = price level, r = real interest rate, T = consumer taxes, b = marginal propensity to consume, = proportional price level impact on consumption, t = proportional income impact on taxes, e = proportional real interest rate impact on investment Y C+I+G C=Cob(YT) - OP I = 10-er T = To+tY G = Go
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