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2. (51%) Consider the following national income model (IS-LM model). TR=200Y=12000r=0.02 where Y - national income, C - consumption, G - government spending, NX -

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2. (51\%) Consider the following national income model (IS-LM model). TR=200Y=12000r=0.02 where Y - national income, C - consumption, G - government spending, NX - net exports (exports-imports), t - income tax rate, r - real interest rate, I - investment, TR government transfers, - denotes variables for the foreign economy. Reduce the above system of equations (through substitutions) to a three-equation system containing the following endogenous variables: Y,r, and I. (a) (17\%) Apply Implicit differentiation to the above system of three equations to analyze the impact of an increase in the income tax rate from 0.4 to 0.45 on Y,r, and I. Sign the impacts (positiveegative/zero) (b) (17\%) Use Implicit differentiation to analyze the impact of an increase in government transfers (TR) on Y,r, and I. Sign the impacts. (c) (17\%) How would expansionary monetary policy affect Y, r, and I ? Use Implicit differentiation to show the impact. 2. (51\%) Consider the following national income model (IS-LM model). TR=200Y=12000r=0.02 where Y - national income, C - consumption, G - government spending, NX - net exports (exports-imports), t - income tax rate, r - real interest rate, I - investment, TR government transfers, - denotes variables for the foreign economy. Reduce the above system of equations (through substitutions) to a three-equation system containing the following endogenous variables: Y,r, and I. (a) (17\%) Apply Implicit differentiation to the above system of three equations to analyze the impact of an increase in the income tax rate from 0.4 to 0.45 on Y,r, and I. Sign the impacts (positiveegative/zero) (b) (17\%) Use Implicit differentiation to analyze the impact of an increase in government transfers (TR) on Y,r, and I. Sign the impacts. (c) (17\%) How would expansionary monetary policy affect Y, r, and I ? Use Implicit differentiation to show the impact

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