! 1. Consider the following economy:C =co + c1 (Y – T),II == ao + a1Y,I2(1+s) I1,T=sl + G andZ = C+I2 + Ğ.Parameters a and co are positive: ao > 0 and co > 0. Parameters a1,ci and s are between 0 and 1: a1 € (0, 1), cı E (0, 1) and s e (0, 1). Inthis economy, business investment (I1) depends on the level of economicactivity (Y). The government wants to encourage investment so for eachdollar of investment they offer a subsidy of s dollars (think of the subsidyas a negative tax: instead of taking money from you, the governmentgives money to you).(a) Derive an expression for the equilibrium level of output.What is the government expenditure multiplier?(b) If s = 0, what is the equilibrium level of output?What isthe government expenditure multiplier?Briefly explainwhy the multiplier has this value.(c) Use algebra to compare the goveri.nient expenditure multipliers inparts (a) and (6).Which one is greater?Brieflyexplain the economic intuition behind your result

Macroeconomics examines the working, composition, and dynamics of an economy. To comprehend and…

(a) Derive an expression for the equilibrium level of output. What is the government expenditure multiplier? (b) If s = 0, what is the equilibrium level of output? the government expenditure multiplier? why the multiplier has this value. What is Briefly explain (c) Use algebra to compare the government expenditure multipliers in parts (a) and (b). Which one is greater? explain the economic intuition behind your result Briefly

(a) Derive an expression for the equilibrium level of output. What is the government expenditure multiplier? (b) If s = 0, what is the equilibrium level of output? the government expenditure multiplier? why the multiplier has this value. What is Briefly explain (c) Use algebra to compare the government expenditure multipliers in parts (a) and (b). Which one is greater? explain the economic intuition behind your result Briefly

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

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Question

1. Consider the following economy:
C =
co + c1 (Y – T),
II =
= ao + a1Y,
I2
(1+s) I1,
T
=
sl + G and
Z = C+I2 + Ğ.
Parameters a and co are positive: ao > 0 and co > 0. Parameters a1,
ci and s are between 0 and 1: a1 € (0, 1), cı E (0, 1) and s e (0, 1). In
this economy, business investment (I1) depends on the level of economic
activity (Y). The government wants to encourage investment so for each
dollar of investment they offer a subsidy of s dollars (think of the subsidy
as a negative tax: instead of taking money from you, the government
gives money to you).
(a) Derive an expression for the equilibrium level of output.
What is the government expenditure multiplier?
(b) If s = 0, what is the equilibrium level of output?
What is
the government expenditure multiplier?
Briefly explain
why the multiplier has this value.
(c) Use algebra to compare the goveri.nient expenditure multipliers in
parts (a) and (6).
Which one is greater?
Briefly
explain the economic intuition behind your result

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Step 3: b) Compute the new expenditure multiplier and explain its value

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Step 4: c) Analyze algebraically which expenditure is larger

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