Hi,

I was wondering if anyone can help with this mathematical economics problem:

The multiplier-accelerator model of growth has the following three equations

St = aYt

It+1 = b(Yt+1 - Yt)

St = It

a) Briefly interpret the above three equations and combine them as a first-order difference equation.

b) Assume that output at time zero isYand solve the difference equation. Which are the determinants of output growth in the model? Explain intuitively._{0 }

It's clear from b) that the difference equation must refer to Y(t). But I can't work out how to get a single first-order difference equation that includes the three equations, that is set up to refer to Y(t).