Question

Using the simple Keynesian model, is it true that a rise in G of $100 will...

Using the simple Keynesian model, is it true that a rise in G of $100 will change Y by more than a

decline in taxes of $100? Explain and prove your answer.

Please provide graphs/diagrams along with your explanation.

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Answer #1

Due to increase in tax consumption declines from C1 to C2 Eqb shift from E to E1. and income declines froom Y1 to Y2.

ON other side due to incaese in govt. expenditure Aggregate demand increases from AD1 to AD2 consequently income rises from Y1 to Y2 rightward.

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