The government expenditure multiplier can be derived using the following aggregate demand equation: Y = C...

 

Transcribed Image Text:

The government expenditure multiplier can be derived using the following aggregate demand equation: Y = C + I + G. The most basic multiplier is using the assumption that taxes are constant. (1) When taxes are constant, use the delta method to derive the government expenditure multiplier. (2) Derive a new government expenditure multiplier using the delta method based on the new tax formula T=T+ ty, where 0 < t < 1. Briefly explain how the government expenditure multiplier derived here is compared to the original government expenditure multiplier derived in question (1). The government expenditure multiplier can be derived using the following aggregate demand equation: Y = C + I + G. The most basic multiplier is using the assumption that taxes are constant. (1) When taxes are constant, use the delta method to derive the government expenditure multiplier. (2) Derive a new government expenditure multiplier using the delta method based on the new tax formula T=T+ ty, where 0 < t < 1. Briefly explain how the government expenditure multiplier derived here is compared to the original government expenditure multiplier derived in question (1).

Answer rating: 100% (QA)

1 When taxes are constant the aggregate demand equation becomes Y C I G To derive the government expenditure multiplier using the delta method we need to calculate the change in equilibrium income Y r... View the full answer