Consider a Keynesian model with the following specifications:C = a + b(Y − T) − cr I = i0 − i1r Md = c0 + c1Y − c2r P¯ = 1 {a, b, c, i0, i1, c0, c1, c2} = {5, 0.75, 0.2, 1.5, 0.8, 3, 0.3, 0.4}Suppose the policy makers in this economy are proposing an increase in taxes T such that∆T = 10. Find the output absorbed by the change interest rate due to this shock. Notethat this is NOT the change in equilibrium output. In fact, it is the reverse of the CrowdingOut effect.
A. 10.4
B. 22.5
C. 30
D. 7.5
