MATH ECONOMICS

Question 5 [10] 1. [10 marks] Consider a close economy without any firms and only consumers and a government. The consumers have autonomous consumption (Co) spending and induced consumption spending. Induced consumption spending comes from disposable income after taxes ((1 - t)Y where t is the tax rate) and no saving takes place. Government spending too has autonomous government spending (Go) and induced government spending where induced government spending is a proportion of national income (g)). Set these into equations to solve for national income and use Cramer's rule to find the equilibrium income of the country. [No marks will be awarded if you use linear algebra.]