Consider the an economy described by the following equations Y = C+I+G C=Co+MPC YD I=d-e.r YD=Y-T where Y is GDP, I is private investment, G is government's purchases of goods and services, C is private consumption, Yp is the disposable income, T is taxes, MPC is the marginal propensity to consume, Co is the autonomous consumption, and r is the real interest rate. 1. Write down the system of equations in matric form, considering the vector of endogenous variables [Y CIYD]T. 2. Does the system have a unique solution? (Hint: the coefficient matrix is inversible you know how solve the system, right?) 3. Solve the system of equations using the inverse matrix method.

Consider the an economy described by the following equations Y = C+I+G C=Co+MPC YD I=d-e.r YD=Y-T where Y is GDP, I is private investment, G is government's purchases of goods and services, C is private consumption, Yp is the disposable income, T is taxes, MPC is the marginal propensity to consume, Co is the autonomous consumption, and r is the real interest rate. 1. Write down the system of equations in matric form, considering the vector of endogenous variables [Y CIYD]T. 2. Does the system have a unique solution? (Hint: the coefficient matrix is inversible you know how solve the system, right?) 3. Solve the system of equations using the inverse matrix method.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 2TY

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