21. Consider the following Keynesian model in macroeconomics: Y = C[(1 – t)(Y + B/P)]+I(r, Y) + G, M/P = L(Y, r), where Y (output) and r (interest rate) are endogenous and P (price), G (government expenditure), 1 (tax rate), M (money supply) and B (government bonds) are exogenous. C, I and L are functions for consumption, investment and money demand respectively. Using Cramer's rule, find the following partial derivatives in studying the comparative statics of the model. (a) aY/aG, (b) ar/aM, (c) aY/aB. What assumptions do you have to make in order for the model to work?

21. Consider the following Keynesian model in macroeconomics: Y = C[(1 – t)(Y + B/P)]+I(r, Y) + G, M/P = L(Y, r), where Y (output) and r (interest rate) are endogenous and P (price), G (government expenditure), 1 (tax rate), M (money supply) and B (government bonds) are exogenous. C, I and L are functions for consumption, investment and money demand respectively. Using Cramer's rule, find the following partial derivatives in studying the comparative statics of the model. (a) aY/aG, (b) ar/aM, (c) aY/aB. What assumptions do you have to make in order for the model to work?

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter11: Fiscal Policy: The Keynesian View And Historical Development Of Macroeconomics

Section: Chapter Questions

Problem 1CQ

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