IN a closed economy,c1=Marginal propensity to consume,c0=Autonomous consumption,t1=Tax rate,I=Investment,G=Government expenditure,Y=real GDP,C=consumer expenditure. Assuming that taxes, T, are a fixed proportion of income.to find:1.The leakages from and injections into the circular flow of income and expenditure. Do leakages equal injections?2. Without doing any calculation, explain verbally (discuss the transmission mechanisms and use graphs when possible) the impact on the government budget deficit of: (a) an increase in households’ autonomous consumption. (b) a reduction in the marginal tax rate, t1.
