MULTIPLIER-ACCELERATOR MODEL Output determined as follows: Y = C + I C = a Y -1 ……….(a) I = b (Y -1 - Y -2 ) + I 0 (b) (I 0 is exogenous investment determined by 'animal spirits') Combining (a) and (b), we have Y = (a + b) Y -1 – b Y -2 + I 0 Output is a function of its lagged levels in the two periods.
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