Consider the following national income determination model for a close economy:
C = 220 + 0.84YD
I = 130 + 0.09YD - 20.5r0
T = 85 + 0.12Y
where r0 is the interest rate. Assume the government expenditure G0 is 100 and
r0 = 4.2.
(a) Write the model in matrix form and determine the equilibrium values of national income, consumption, investment, and tax.
(b) From the matrix of coefficients, determine the model's government expen- diture multiplier and tax multiplier.
(c) Assume the government expenditure changes to 90. Determine the new equilibrium values of Y, C, I and T .