Re: ISI Sample Paper 2013 ME-II Doubts

Posted by MI on Apr 30, 2013; 12:44pm
URL: http://discussion-forum.276.s1.nabble.com/ISI-Sample-Paper-2013-ME-II-Doubts-tp7580214p7580246.html

Hey kawai,

You pointed out rightly that effect will be manyfolds in Keynesian Cross. But its still negative in this case.

E (Planned Expenditure)= C* + c(Y-T) - (I* -bi) + G* + NX (other than investment)

Let NX =  Export - Import = Export - mY

Where  m = marginal propensity to import

E = (C* + G* - I* - cT + Export) + cY - mY

....(For the sake of simplicity export component is assumed to be autonomous)

In equilibrium E= Y

Y ( 1-(c-m)) = Autonomous component of expenditure

Delta Y ( 1-(c-m)) =  - delta I*

Assuming interest rate to be constant....


So when Delta I* is positive output will decrease by

 - Delta I* / (1-(c-m))

please let me know if you find something objectionable