1. Suppose the government decreases government expenditure by $100 in order to control a growing budget deficit. Carefully explain the effect on the equilibrium GDP in the Keynesian income-expenditure model.

2.Suppose the government increases taxes by $100 through an increase in the exogenous component of taxes. Carefully explain the effect on the equilibrium GDP in the Keynesian income-expenditure model.

3. Carefully explain how the Reserve Bank changes the interest rates and its effect on output in the economy.

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The government decreases government expenditure by 100 in order to control a growing budget deficit The effect on the equilibrium GDP is that income o... View the full answer