Assume the following information represents the National Income Model of an
„Utopian‟ economy.
Y = C + I + G
C = a + b(Y – T)
T = d + tY
I = IO
G = GO
Where a > O; O < b < 1
d > O; O < t < 1
T = Taxes
I = Investment
G = Government Expenditure
i) Explain the economic interpretation of the parameters a,b,d and t.
ii) Find the equilibrium values of income, consumption and taxes.