# Economics Question

Assume that that tax revenues (T) are proportional to income (Y). That means if the tax rate is equal to *t*, then we have

*T = tY. *

Also, consumption (C) and investment (I) functions are given as the following:

C = a + b (Y – T) [where a and b are constant]

*I *= *c *– *dr*. [where c and d are constant, and r is the interest rate]

**Part a. (10 Marks) **Find the expression of the government purchase multiplier. (Use derivative)

**Part b. (10 Marks) **what will happen to multiplier if tax rate increases? What will happen to multiplier if MPC increases?

Need help with a similar economics question? Order now ORDER NOW for instant services.