Question

Which equation represents equilibrium with government?

Options

• \[Y=\overline{C}+\overline{I}+cY\]

• \[Y=\overline{C}+\overline{I}+G+c(Y-T)\]

• \[Y=G+T+cY\]

• \[Y_d=\overline{C}+\overline{I}+G\]

Answer 1

With government, equilibrium is \[Y=\overline{C}+\overline{I}+G+c(Y-T)\]. Government Expenditure enters directly, while Taxes reduce disposable income.