Given the following matrix comprising of a vector of reaction coefficients, vector of endogenous variables and a vector of constants and exogenous variables, Ly L,
1-c,(1-T)-1, (C,+1)] [?c, +?l, +?G, -c,OT
Note: All variables and characters carry equal connotations used in macro economic analysis.
a). Determine the economy's equilibrium income and rate of interest. (4marks)
b). Predict and interpret the impact of a change in money supply and taxes on the equilibrium rate of interest.
(4marks)
c). Suppose we introduce price regime in the above economy,
(i). What would be the impact of price increase on the equilibrium income and the rate of interest?
(ii). State any two assumptions you would consider in conducting your comparative static predictions.
(5marks)
(2marks)