Please highlight the correct answer. For each question there exists one correct answer.
1. An open economy's goods market is described by the following equations: Consumption function: C = a + b(Y - T) with 0 < b < 1 and a > 0
Tax revenue: T = tY with 0 ≤ t < 1
Investment and government spending are exogenous: I = I0, G = G0.
Net export function: X = g - mY with 0 ≤ m < 1 and g > 0 Let m = 0 and b = 0.9.
An increase in the tax rate t from 0 to 0.3
(a) should increase the investment multiplier ?Y ?I0 by around 73%.
(b) should reduce the investment multiplier by around 73%.
(c) should increase the government spending multiplier ?Y ?G0 by around 33%.
(d) should reduce the government spending multiplier by around 33%.
(e) should reduce both the investment and government spending multipliers by around 33%.