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The government expenditure multiplier can be derived using the following aggregate demand equation: Y = C + I + G. The most basic multiplier

The government expenditure multiplier can be derived using the following aggregate demand equation: Y = C + I 

The government expenditure multiplier can be derived using the following aggregate demand equation: Y = C + I + G. The most basic multiplier is using the assumption that taxes are constant. (1) When taxes are constant, use the delta method to derive the government expenditure multiplier. (2) Derive a new government expenditure multiplier using the delta method based on the new tax formula T=T+ ty, where 0 < t < 1. Briefly explain how the government expenditure multiplier derived here is compared to the original government expenditure multiplier derived in question (1).

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1 When taxes are constant the aggregate demand equation becomes Y C I G To derive the government expenditure multiplier using the delta method we need to calculate the change in equilibrium income Y r... blur-text-image

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