Consider the following modified Keynesian model of income determination: where C = consumption expenditure I = investment
Question:
where C = consumption expenditure
I = investment expenditure
Y = income
G = government expenditure
Gt and Ytˆ’1 are assumed predetermined
a. Obtain the reduced-form equations and determine which of the preceding equations are identified (either just or over-).
b. Which method will you use to estimate the parameters of the overidentified equation and of the exactly identified equation? Justify your answer.
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a The three reduced form equations are For this system M 3 and ...View the full answer
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