Question

Question 3 1.5 pts The aggregate demand of an open economy is given by the after-tax domestic consumption C, the investment I (which depends on the interest rater), the government spending G and net exports X-M: AD-C+I+G+X-M=CO+ c1 (1 - t)Y + I(r) +G+X-mY Co is autonomous consumption.c, is the marginal propensity to consume, and m is the marginal propensity to import. In the economy's equilibrium this equals its output: AD - Y. Solving for Y yields: y=(1/(1-c1(1 – t) + m))(cO+1(r)+G+X) Given this equation, which of the following increases the multiplier? Afall in government spending Afall in the marginal propensity to import. Arise in the tax rate. Afall in the interest rate.

Answer 1

A:D=6+I +6+X-Miz Cota (e-t)y +118) th+x - my On soling, we get .y = x (Lot I (1) + 4 + x) Locäli- t) + m 2 In this equations to . . . multihlies . . -2.1-C(L-7)+m where cat marginal propensity to consume . ..ts marginal tox rate: mo marginal propensity to inforts . so.. if mi e marginal froknsity to inforts falls, then chominator will deirease, . . which rises the multiflier . Rest gist spending is part of Aggregate demand Rise in tax rate will fall multiplier Fall in interest rate will also aggregate demand So (B) fart is correit aswes. (Note Hit like, please).