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ECO102 Week 4
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Lecture notes of 2 pages for the course ECO102 at U of T (week 4 notes)
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Introducing government households and has nothing to do with. Fiscal policy: is the use of govern,its domestic consumption
tax and spending policies to achieve . Imports: takes into consideration
government objectives domestic consumption, and power of the
dollar, and inflation.
Government purchases . 𝐼𝑀 = 𝑚𝑌
. Government purchases: when the . 𝑁𝑋 = 𝑋 − 𝑚𝑌
government buys something that adds . m - Marginal Propensity to import
directly into the demands for the . Note: Net exports are negatively
economy’s current output of goods related to national income, meaning it’s
(buying supplies, hiring a public downward sloping
servant)
. transfer payments: indirectly effect
AEF model (welfare and employment
insurance)
Net tax revenues
. Tax rates decrease disposable income . Net exports falls as national income
while transfer payments increase it increases
. 𝑇 = 𝑡𝑌
. Net tax rate: the increase in net tax Shifts of the Net Export function
revenue generated when national . the two determining factors for NX is
income rises by $1 . Changes in foering income
. Budget deficit: when government (exports)
spending is more than the tax revenues . Changes in International
. budget surplus: is when government relative prices (imports & exports)
spending is less than the tax revenues . Changes in foering income: leads to an
. Balanced budget: is when government increase in the amount of goods
spending is equal to tax revenues demanded by the foering country,
. NOTE: when measuring the overall therefore increasing our Exports.
contribution of government to desired . changes in international relative
aggregate expenditure, all levels of prices: so basically when CAD becomes
government must be included. expensive, our exports fall because it
now costs other countries more to buy
Introducing foreign Trade our goods, and we will start to import
. Exports: autonomous since the level of more because our own goods cost a lot.
exports depends on the foreign
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