Suppose the Multiplier Model Is

question 35

Essay

Suppose the multiplier model is
C = C₀ + cY_D
I = I₀
G = G₀
Y_D = Y + TR - tY
TR = TR₀
Y = C + I + G
where C₀ is autonomous consumption,c is the marginal propensity to expend,Y is income,C is consumption,Y_D is disposable income,I is investment,G is government expenditures,TR is transfer payments,and t is the income tax rate.Furthermore,C₀,I₀,G₀ and TR₀ are positive numbers and 0 < c < 1.In this version of the multiplier model,consumption spending is a function of disposable income (Y_D).Disposable income is defined as national income (Y)plus transfer payments (TR)and minus tax payments (tY).The tax rate is a constant,t,such that 0 < t < 1.Transfer payments are items like social security,Medicare,and welfare payments,and people who receive these payments can spend them like earned income.
(a)Derive the formula for equilibrium national income.
(b)Derive the multiplier for an increase in transfer payments from TR₀ to TR_1.

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Definitions:

Schizophrenia

A long-term mental disorder involving a breakdown in the relation between thought, emotion, and behavior, leading to faulty perception, inappropriate actions and feelings, withdrawal from reality and personal relationships into fantasy and delusion, and a sense of mental fragmentation.

Depression

A common and serious medical illness that negatively affects how one feels, thinks, and acts, characterized by feelings of sadness and/or a loss of interest in activities once enjoyed.

Schizophrenia

A mental disorder characterized by abnormal behavior, strange speech, and a decreased ability to understand reality.

Psychiatric Hospital

A psychiatric hospital is a specialized medical facility dedicated to the treatment, care, and support of individuals with mental health disorders.