Let the national income model be: Y = C + I_0 + X_0 - M C = a + b(Y - T_0) (a gr

Question

Let the national income model be: Y = C + I_0 + X_0 - M C = a + b(Y - T_0) (a greater than 0, 0 less than b less than 1) M = mY (0 less than m less than 1) Y is the National Income. C is Consumption. X_0 is Exports. M is Imports. T_0 is Net Taxes. I_0 is Investment. Investment. Net Taxes and Exports are exogenous variables. Rewrite this set of equations into a matrix format. What restriction on the parameters is needed for a solution to exist? In other words, what restriction is needed in order to make the coefficients matrix non-singular? Please be specific. Use the Cramer's rule to solve the values of all endogenous variables.

Explanation / Answer

Here given eqn Y=C+I0+X0-M and C=a+b(Y-T0) (a greater 0,0 less b less 1)   M=my (0 less than m less 1)

Here Y is National income

C is consumption

X0 is exports

M Is imports

T0 is next taxes

I0 is investment

investment exports net taxes are exogenous variables

A.Y= -M T0   I0

X0 0 C

B. On investment and net taxes exports

C. Use the cramer's rule Y C -M are the endogenous variables.

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