1 Keynesian Multiplier Consider a two period economy with a representative household, a representative firm and a government. Instead of maximizing utility subject to budget constraints, the household follows a consumption rule that specifies a fraction of current dispos- able income going to consumption with the remaining disposable income going to savings. The fraction is fixed and less than 1. So we have: C(Y-T) = 0 . (Y - T) for 8