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3. Consider the following national income model: Y = C +10 + G. C = 22 + 0.8(Y T) T = 15 + 0.2Y where
3. Consider the following national income model: Y = C +10 + G. C = 22 + 0.8(Y T) T = 15 + 0.2Y where Y,C and T are endogenously-determined income, consumption and tax revenue, respectively. Io and Go are exogenously-determined investment expenditure and government spending. Assume that dlo = 0. Using the implicit function rule, find the comparative static derivatives for Go. (That is, find the effects of an increase in government spending on consumption, income and tax revenue.) (40p)
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