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Consider the model of Keynesian cross with fixed planned investment expenditure, government spending and taxes. Assume that consumption function is given by C= a +
Consider the model of Keynesian cross with fixed planned investment expenditure, government spending and taxes. Assume that consumption function is given by C=a+mpc*(Y-T), where the parametera>0 is called autonomous consumption, and the marginal propensity to consume satisfies 0<mpc<1. Compute equilibrium output (income) as a function of parameters (aandmpc) and exogenous variables. How does equilibrium output depend ona?mpc? Government spending? Taxes?
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