Economics

1. Exogenous variables are those which are determined outside a model. In our model we have exogenous variable just Government Spending (G). Endogenous variable are variable determined inside a model. In our model we have endogenous variable Income Y, Consumption C, Investment I, Net Exports X, and Money multiplier M.

2. Closed economy model there is just income Y, and consumption C inside the model, it means that, these variables are endogenous, but Investment I, net exports and government spending G are outside the model and they are exogenous. Model would look like this:

Y = a+b (1-t) Y+G +X

and the multiplier will be:

1

1-b(1-t)

In the open economy model there is more endogenous variables than just Income Y, and consumption C. For example Net exports X can be endogenous variable:

X =g-mY

and the multiplier in this case would be:

1

1-b (1-t)+m

The multiplier for the open economy model is smaller because we have to add the denominator the

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