# Keynesian cross model diagram

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Using the Keynesian Cross model diagram and equation (Y= C+I+G+X-M), critically and briefly illustrate the short run and long run economic impact of 2005 National Highway and Mass Transit Bill of $300 billion to be spent over the next five years. The impact will be in terms of major macroeconomic variables of US economy.

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This solution provides the short and long run economic impact of the 2005 National Highway and Mass Transit Bill through the use of the Keynesian Cross model diagram and equation.

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According to the Keynesian Cross model, the expenditure of households, firms, foreigners and the government on domestic goods and services is expressed as E= C + I + G + NX. Consumption (C) can further be expressed as C + b(Y − T ), where b is the marginal propensity to consume, Y is income and T is taxes.

Thus we have

E = C + I + G + NX ---> E = C + b(Y -; T )+ I + G + NX

If we draw a graph of these with expenditure on the vertical axis, equilibrium is represented as a 45-degree line (slope of ...

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