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2. a) Derive the equation for the Keynesian Cross and draw it on a diagram with Y on both the hor...

2. a) Derive the equation for the Keynesian Cross and draw it on a diagram with Y on both the horizontal and vertical axes. What is output? Assume that r = 0.1 for this part of the question. Hint: Use the equation Y = C d +I d +G.

b) Suppose that government spending doubles to G' (prime aka future) = 200. The government still balances its budget. What is the effect on output? Show this on your diagram from part a).

c) What is the multiplier in this example? Interpret the multiplier. How is it related to the marginal propensity to consume? Discuss the implications of the multiplier for the effectiveness of government spending to stimulate output.

d) For the case where G = 100 derive the IS Curve. Plot the IS curve on a diagram with r on the vertical axis and Y on the horizontal axis. e) For the case where G' = 200 derive and draw the new IS Curve on your diagram.

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4-2 y n Vr Ap out the cate 어 Balanced budget nadtitlee hu HX out to

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