Question: Steps for Consider the following GDP equation, consumption function, exports function. imports function and investment function and use them to answer the following questions 1
Steps for Consider the following GDP equation, consumption function, exports function. imports function and investment function and use them to answer the following questions C I Gt EXt IMt It a R F Ct aiY; G agYt EX IM a Derive the IS curve as a relation between short run output It and the real interest rate gap Rt Tb Find the government spending multiplier da holding the real interest rate constant. c Is the multiplier derived in b greater than one or smaller than one? Briefly provide intuition for your answer along with mathematical reasoning. d Consider the following MP curve where monetary policy and real interest rates now depends on the shortrun output. Derive the AD curve. e Find the government spending multiplier da If n is positive, is the multiplier higher or lower than in part c
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