4. Consider the following Keynesian national-income model, Y = C + Io + Go C = a + b(Y-To) where a and bare parameters with the following range; a>0 and 0

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4. Consider the following Keynesian national-income model,
Y = C + Io + Go
C = a + b(Y-To)
where a and bare parameters with the following range; a>0 and 0<b<1. Y represents national income,
C is consumption expenditure, Io is investment, Go is government spending, and To taxation.
(a) What are exogenously determined variables in this model.
(b) Show that this model can be expressed in the following matrix form:
1
+ Go
(²7) (c)-(6-7)
a-bTo
(c) Using matrix algebra, find the solution for Y and C.
(d) Suppo se government spending increases by some amount AGo to become Go+AGo. Show the
change in Y and C as a response to this increase in spending.
Transcribed Image Text:4. Consider the following Keynesian national-income model, Y = C + Io + Go C = a + b(Y-To) where a and bare parameters with the following range; a>0 and 0<b<1. Y represents national income, C is consumption expenditure, Io is investment, Go is government spending, and To taxation. (a) What are exogenously determined variables in this model. (b) Show that this model can be expressed in the following matrix form: 1 + Go (²7) (c)-(6-7) a-bTo (c) Using matrix algebra, find the solution for Y and C. (d) Suppo se government spending increases by some amount AGo to become Go+AGo. Show the change in Y and C as a response to this increase in spending.
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