Q#1

Consider the following National Income model

Y

C

(

Y

)

I

(

i

)

G

o

=

0

(

0

C

'

<

1

;

I

'

<

0

)

KY

+

L

o

M

so

=

0

(

K

is

positive

constant

)

Analyze the comparative statics of the model when money supply changes and when government

expenditure changes? What can you conclude about the effectiveness of monetary and fiscal

policy in this model?