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Imagine an economy in which the government spent all its tax revenues, but was prevented (by a balanced budget amendment) from spending any more;...

Imagine an economy in which the government spent all its tax revenues, but was prevented
(by a balanced budget amendment) from spending any more; thus G = t×Y, where t is the tax
rate.
a. Explain why government spending is endogenous in the model.
b. Is the multiplier larger or smaller than the case in which government spending is
exogenous?
c. When t increases, does Y increase, decrease, or stay the same?
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Imagine an economy in which the government spent all its tax revenues, but was prevented
(by a balanced budget amendment) from spending any more; thus G = t×Y, where t is the
tax rate.
a. Explain...

Sign up to view the full answer

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