Solution-Explain why government spending is endogenous

Explain why government spending is endogenous

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Imagine an economy in which the government spent all its tax revenues, but was prevented from spending any more; thus G = t x Y, where It is the tax rate.

a. Explain why government spending is endogenous in the model.

b. Is the multiplier larger or smaller than the case in which government spending is exogenous?

c. When t increases, does Y increase, decrease, or stay the same?

Reference no: EM13993688

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Explain why government spending is endogenous

Reference no: EM13993688

Reference no: EM13993688

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