Question: Consider the model Ct = 110 + 0.75Yt It = 4(Yt Yt1) Et = Ct + It Yt = Et1 (i) Show that this

Consider the model Ct = 110 + 0.75Yt It = 4(Yt − Yt−1)

Et = Ct + It Yt = Et−1

(i) Show that this results in a second-order difference equation for income. Solve this equation.

(ii) Suppose It = 4(Ct − Ct−1)

Does this lead to a different time path for income?

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