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:

RULPA

The Revised Uniform Limited Partnership Act, designed to update and standardize the law governing limited partnerships across the states.

Limited Partner

An investor in a limited partnership, who contributes capital but does not take part in management and is only liable to the extent of their investment.

State Statute

A state statute is a law enacted by the legislative branch of a state government, applicable within the jurisdiction of that state.

Limited Partnerships

A form of partnership composed of one or more general partners who manage the business and are personally liable for partnership debts, and one or more limited partners who contribute capital and share in profits but are not involved in day-to-day operations and have limited liability.