Imagine an economy in which the government spent all its tax revenues, but was prevented from spending

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Imagine an economy in which the government spent all its tax revenues, but was prevented from spending any more; thus G = t x Y, where It is the tax rate.

a. Explain why government spending is endogenous in the model.

b. Is the multiplier larger or smaller than the case in which government spending is exogenous?

c. When t increases, does Y increase, decrease, or stay the same?

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Macroeconomics

ISBN: 978-0138014919

12th edition

Authors: Robert J Gordon

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Question Posted: Aug 26, 2013 04:23 AM

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Imagine an economy in which the government spent all its tax revenues, but was prevented from spending

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a G is endogenous as it is related to an endogenous variable in the system which is Y ...View the full answer

Macroeconomics

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