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Unformatted text preview: a=a,T=T,I= I,G=G,X=X Y=a+b(YT)+ I+G+X Solve for Y: YbY=abT+ I+G+X (1b)Y=abT+ I+G+X 7 abT+ I+G+X Y= 1b Government Spending Multiplier: 1 1G 1Y 1 1Y= , = >1 1b 1G 1b 8 1 1 I 1Y 1 1Y= , = >1 1b 1 I 1b Investment Spending Multiplier: Net Exports Multiplier: 1 1X 1Y 1 1Y= , = >1 1b 1X 1b 9 Tax Multiplier: 1b1T 1Yb 1Y= , = <0 1b 1T 1b BalancedBudget Multiplier: 1G=1T 10 ( ) = Gb1T 1Gb1G 1Y= 1b 1b 1b 1G 1Y= 1b 1Y =1 1G Implication: if government purchases rise by a dollar, so does income. 11 Numerical Example Problem: compute the equilibrium level of income, Y. Numerical Values: a=100,b = .75,T=50, I=300,G=50,X=5 12 Y=100+.75(Y50)+300+50+5 (1.75)Y=45550*.75 .25Y=417.5 Y=1670 Value of the Multiplier: 1/(1b)=1/(1.75) = 4...
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 Winter '08
 Rossana
 Macroeconomics, Government Spending Multiplier, investment spending multiplier, exogenous expenditure components, 1b BalancedBudget Multiplier, Net Exports Multiplier

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