We consider a "Closed Economy National - Income Model",

whose variables are:

Y - (National) Income (or Output)

C - Consumption

I - Investment

G - Government Expenditure

T - Taxes

These variables are related by the following equations:

Y = C + I + G

C = a + b * (Y -T)

T = c + d * Y

Where a > 0, 0 < b < 1, c > 0 and 0 < d < 1 are just some constants

depending on the particular economy chosen.

Question 1. Find the income Y as a function of variables I and G only (it may depend on a, b, c, d as well, since they are just constants, not variables).

Question 2. How does an increase in investment inuence the income ?

How does an increase in government expenditure inuence the income?

Justify your answers using partial derivatives.