Question

3. Consider the following simple Keynesian macroeconomic model Y = C + I + G C = 200 + 0.8Y I = 1000 - 2000R, where the endogenous variables include national income (Y), consumption (C), and investment (I), and the exogenous variables include government spending (G) and the interest rate (R). (a) Set up this model with a 3 × 3 matrix of parameters, a 3 × 1 vector of endogenous variables, and a conformable vector of exogenous variables. (b) Find the inverse of the 3 × 3 matrix of parameters. (c) Evaluate the effect of a $50 billion decrease in government spending on income. Compare this result to the one obtained in Section 4.1. Does your answer here differ, and if so, can you provide an economic rationale for this difference?

          3. Consider the following simple Keynesian macroeconomic model
Y = C + I + G
C = 200 + 0.8Y
I = 1000 - 2000R,
where the endogenous variables include national income (Y), consumption (C), and investment (I), and the exogenous variables include government spending (G) and the interest rate (R).
(a) Set up this model with a 3 &times; 3 matrix of parameters, a 3 &times; 1 vector of endogenous variables, and a conformable vector of exogenous variables.
(b) Find the inverse of the 3 &times; 3 matrix of parameters.
(c) Evaluate the effect of a $50 billion decrease in government spending on income. Compare this result to the one obtained in Section 4.1. Does your answer here differ, and if so, can you provide an economic rationale for this difference?

3. Consider the following simple Keynesian macroeconomic model
Y = C + I + G
C = 200 + 0.8Y
I = 1000 - 2000R,
where the endogenous variables include national income (Y), consumption (C), and investment (I), and the exogenous variables include government spending (G) and the interest rate (R).
(a) Set up this model with a 3 times; 3 matrix of parameters, a 3 times; 1 vector of endogenous variables, and a conformable vector of exogenous variables.
(b) Find the inverse of the 3 times; 3 matrix of parameters.
(c) Evaluate the effect of a 50 billion decrease in government spending on income. Compare this result to the one obtained in Section 4.1. Does your answer here differ, and if so, can you provide an economic rationale for this difference?

Added by Gregorio H.

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