Introduction to Mathematical Economics

Comparative Statistics

Problem 2 Consider the following nationalincome model: YC[Y)I(i}Gu= metres I'e} kv+L[i}Mm=n [if-

Problem 2 Consider the following national-income model: Y-C(Y) - I(i) -Go-O (0 < C' < 1; 1' < 0) kY L(i) -Also -O (L' < 0) where k is a phitive constant, and Go and M so are exogenous. (a) Consider the left hand side of the first equation Fl, and the left hand side of the second equation F2. Setup the Jacobian. (b) Can we use the implicit-function theorem? (c) What is the expression for y/Mso? Please sign it, and explain the economic meaning of the sign. (d) What is the expression for Y/Go? Please sign it, and explain the economic meaning of the sign. (e) Compare the expressions in parts (c) and (d). The first one is the effect of monetary policy on output, the second is the effect of fiscal expansionary policy on output. Can you tell which one has a larger effect? What does it depend on?