a) What is the value of G which corresponds to the simple multiplier (with taxes)? b) By

a) What is the value of αG which corresponds to the simple multiplier (with taxes)? 

b) By how much does an increase in government spending of ∆G (300) increase the level of income in this model, which includes the money market?

c)By how much does a change in government spending of ∆G (300) affect the equilibrium interest rate?

d)Explain the difference between your answers to parts (a) and (b)

C = 0.8(1-t)Y

T = 0.25

I = 900-50i

G = 800

L = 0.25Y - 62.5i

M/P = 500

 

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To answer your questions we need to use the ISLM model The ISLM model analyzes the relationship between output Y interest rates i and the goods and mo... View the full answer