Consider the following behavioral equations: C=c, +c,Y, T=1, +1,Y Y, = Y –T G and I are both constant. Assume that , is between 0 and 1. a. Solve for equilibrium output. b. What is the multiplier? Does the economy respond more to changes in autonomous spending when 1, is 0 or when 1, is positive? Briefly explain. c. Why is fiscal policy in this case called an automatic stabilizer?
Consider the following behavioral equations: C=c, +c,Y, T=1, +1,Y Y, = Y –T G and I are both constant. Assume that , is between 0 and 1. a. Solve for equilibrium output. b. What is the multiplier? Does the economy respond more to changes in autonomous spending when 1, is 0 or when 1, is positive? Briefly explain. c. Why is fiscal policy in this case called an automatic stabilizer?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![Consider the following behavioral equations:
C =c, +c,Y»
T=1, + 1,Y
Y, = Y –T
G and I are both constant. Assume that 4, is between 0 and 1.
a. Solve for equilibrium output.
b. What is the multiplier? Does the economy respond more to changes in
autonomous spending when 1, is 0 or when 1, is positive? Briefly explain.
c. Why is fiscal policy in this case called an automatic stabilizer?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe3a0be4f-4303-44d7-80da-4fbf8856a87b%2F545adfba-49a2-4fb8-a336-9627866e5bc3%2F76vhhzf_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Consider the following behavioral equations:
C =c, +c,Y»
T=1, + 1,Y
Y, = Y –T
G and I are both constant. Assume that 4, is between 0 and 1.
a. Solve for equilibrium output.
b. What is the multiplier? Does the economy respond more to changes in
autonomous spending when 1, is 0 or when 1, is positive? Briefly explain.
c. Why is fiscal policy in this case called an automatic stabilizer?
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