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4.Implicit differentiation (9 marks)

By December 8, 2021No Comments

4.Implicit differentiation (9 marks)In a standard Keynesian model in a closed economy,we have that demand for goods isequal to C+I+G and supply is equal to Y,where Y is output,C consumption,Iinvestment and G is the level of public spendings.We assume that C(Y,G),the propensity to consume,and I(Y,G),the propensity toinvest,both depend on Y and G.a.2 marks.Write the equation which implicitly relates Y and G.b.4 marks.Derive Y'(G)in the general case,and interpret.C.3 marks.Assume that C(Y,G)=yY,and I(Y,G)=BG,with 0 <1 and 0 B<1.Find the expression for Y(G).What are the incentives for the government to increasespending in this economy?How do they depend on y and B?