Given a hypothetical consumption function of the form: Y = C + I0 + G0 ,C = α + β Yd Where: Yd = Y – T, Y = Income, T = Taxes

(1) Given a hypothetical consumption function of the form:

Y = C + I0 + G0 ,C = α + β Yd Where: Yd = Y – T, Y = Income, T = Taxes

Government spending and investment are exogenously determined at G and I respectively. Assuming this model represent a three sectors economy, determine Investment multiplier, Government spending multiplier and Tax multiplier. If there is an increase in marginal propensity to consumer, how will this affect the national income?

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