Question

2. Consider the National Income model given by the following equations. Y-C-I.-G, = 0 C-a-B(Y - T) = 0 T-y-SY=0 where Y, C, and T are endogenous variables and I., G., a, b, Y, 8 are exogenous and B and 8 are positive fractions. Use Cramer’s Rule to find the effect of a change in G, on Y and C.

Answer 1

National income model's equations are given.

We find that the effect of a change in Go on Y and C is positive.

Please refer to the images below for the complete mathematical solution:

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di feaunbasng Ca) 6) - AP Sinu we at dhaye u Go waut ৮ । frm (6) we Jet: (B) Fum ) & (3) we C1-5) p -1 dy dc 1 1 Dividiny by d4o [C1-)P -1 dcldao 1 -1 we hare By Crammer's nule -I1 -1 - 1 -1 1

1-1)10) $2 FI-)-()) 2 -Bu-s) +1 ffet a cravys pCi-S) 1- imilay CI-1)B -1 1 -1 (-)RCi) -C1-6)pCn OC1) dly (-)00 BCL-) 1- BI-) 2 alo .Efteue Co dy fi-s) - Ba-s)