Question

Given a is a non income tax b is income tax & is marginal propensity to consume y is autonomous consumption t tax y national income i0 investment and g0 government spending
Formulate the equilibrium to find the reduced form of equilibrium income Ye

Answer 1

The reduced form of equilibrium income is $Ye = y + c ×Y×(1 - (a + b)) + i0 + g0.$