Consider the following model: Ct = 0 + 1Yt + 2Ct1 + u1t It = 0 + 1Rt + 2It1 + u2t Rt = 0

Consider the following model:

Ct = α0 + α1Yt + α2Ct−1 + u1t It = β0 + β1Rt + β2It−1 + u2t Rt = γ0 + γ1Yt + γ2Mt + u3t Yt = Ct + It + Gt where:

Ct denotes real consumption, Yt denotes real national income, It denotes real investments, Mt denotes real money supply, Rt denotes the interest rate, and Gt denotes real government expenditures.

(a) Check the identifiability of the model by applying both the order and the rank condition for identification.

(b) Express the model in its typical form and then solve to obtain the reduced form equations.

(c) If government expenditures increase by one unit, calculate the average effect on consumption, investments, interest rate and national income.