ECOS2002 - Tutorial 2
Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit
ECOS2002 - Tutorial 2
The Goods Market
1. Keynesian Cross
Consider the simple model of the good markets:
Z = C + I + G
C = c0 + cl(Y - T)
I = I¯
G = 
T = 
(a) What is the difference between c0 and cl?
(b) Derive the equilibrium condition in the goods market.
(c) Identify and explain the multiplier.
2. Assume the behavioural equation for taxes changes to:
T = t0 + tlY
(a) Explain the behavioural equation for taxation in words (b) Derive the new equilibrium condition. Will the multiplier change?
3. Paradox of Thrift Consider the simple model of the good markets:
Z = C + I + G
C = c0 + cl(Y - T)
I = I¯
G = 
T = 
Saving in the simple model of the goods market is defined as S = Y - C - G.
Using the goods market equilibrium and the definition of saving, find the predicted change in equilibrium aggregate savings if consumers decided to save more (c0 t). Explain why the effect of an aggregate increase in savings is called a paradox using your answer.
4. Discussion Consider the following statement:
Changes in government purchases have a more powerful effect on the economy than equal-sized changes in taxes or transfers .
Do you agree? Explain!
2022-11-23