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Assume the following relationships: C=C+mpc(YT) br I=I_dr G=C TT+tY The parameter d>0 represents the responsiveness of the investment function to changes in interest rates. The

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Assume the following relationships: C=C+mpc(YT) br I=I_dr G=C TT+tY The parameter d>0 represents the responsiveness of the investment function to changes in interest rates. The parameter b>0 represents the responsiveness of consumption to changes in interest rates. The tax system is composed of the average marginal income tax rate 2' >0 (EX. = tax revenue) and T autonomous taxes. A. Derive the IS equation using the above relationships. [10 points] B. If government spending and autonomous taxes were increased by $600 billion each, by how much would real GDP change (AY)? Assume mg=0.6 and t=0.2. Solve numerically and show your work. Box in your answers. [5 points]

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