Y6

1) Suppose that aggregate demand is expressed as AB = C(Y ) + I + (j. a) In the context of the Keynesian Cross show what happens to aggregate demand when government expenditures increase. b) Express the change in income from part (a) algebraically. . c) Now suppose instead of raising expenditures as in part (a), the government decides to raise taxes. Show the effect of this policy using the Keynesian Cross. d) Express the change in income algebraically. e) Now suppose that the government raises expenditures and taxes by the same amount. Express the change in income algebraically. Explain your result