DSE 2010 doubt

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[ElPsyCongroo]

Write out the equation for income determination THOUGH, from the Keynesian point of view I mean, C+I+G, you'll realize C increases after the change because more income is in the hand of the worker and he consumers more, this in turn will eventually lead to a change in equilibrium income.

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[ElPsyCongroo]

There would be no change in tY without the transfer because there is no change in Y.

Equilibrium Y changes with a change in the proportion of total income in the hand of the worker. Basically just solve for Y in the following:

Y= a(1-t)AY + b(1-t)(1-A)Y + I + G

a is the workers mpc < b, which is the capitalists mpc

A is the proportion of income the worker holds

The transfer changes A and therefore equilibrium Y

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