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Macro Econ > CH7 - Government and Trade > Flashcards

CH7 - Government and Trade Flashcards

1
Q

In our macro model, gov. purchases is _______ with respect to national income

A

autonomous

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2
Q

(G) does not include what?

A

Government transfer payments

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3
Q

What is the net tax revenue equation?

A

T = total tax revenue - transfer payments

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4
Q

What is the net tax rate

A

The increase in net tax revenue generated when GDP increase by $1
(t)

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5
Q

The net tax revenue enters the AE function _________ through its effect on what (2)?

A

indirectly

disposable income in the consumption function

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6
Q

What is it called when government purchases are larger than the net tax revenue?

A

Budget deficit

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7
Q

What is the budget balance?

A

The difference between total gov. revenue and total gov. expenditure

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8
Q

What is a fiscal policy?

A

The use of government’s tax and spending policies to attain government objectives

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9
Q

What are the 2 basic fiscal tools

A

Government spending
Taxation

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10
Q

Why would you choose to emphasize on government spending rather than taxation, when trying to increase national income?

A

Because the eventual effects on national income will be larger

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11
Q

What does a government issues when it’s running a budget deficit?

A

Additional bonds or Treasury Bills

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12
Q

What does the marginal propensity to import indicates?

A

The increase in imports when national income rises by $1

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13
Q

What is the net export function?

A

NX = X - mY

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14
Q

If Canadian prices rise compared to other countries, what happens to imports and to the NX function

A

Imports will rise

NX function shifts downward and becomes steeper

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15
Q

How is the net export function related to national income

A

It’s negatively related

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16
Q

The net export function is downward sloping because ?

A

The net export function (X - IM) falls as real national income increases

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17
Q

A major trading partner experiences a recession
1. What happens to the income of his country?
2. What happens to Canadian exports
3. What happens to the net export function?

A
  1. Income decreases
  2. Canadian exports decreases
  3. NX function shifts downward
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18
Q

With the addition of government and foreign trade to the simple macro​ model, the MPD out of national income is
_______
the MPC out of disposable income.

A

less than

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19
Q

Some national income is collected as what? And spent as what?

A

taxes and spent on imports

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20
Q

What is the multiplier with government and foreign trade?

A

1/ (1 - MPC*(1 - t) - m)

21
Q

The value of the simple multiplier with gov. and trade is ______ than the one without it

A

Lower

22
Q

What implies the assumption that prices level is constant ?

A

Firms are willing and able to produce any amount of output that is demanded without requiring any changes in prices

23
Q

Is national income always at its equilibrium? Why

A

No because actual values are used when measuring national income and desired values are used for its determination.

24
Q

Including government and trade, what is the new MPD equation?

A

MPD = MPC*(1 - t) - m

25
Q

How do you find the equilibrium if the AE function is given? (no graph, only AE = a + bY)

A

You replace AE by Y so it looks like this: Y = a + bY

And then you isolate Y

26
Q

When public saving is positive, what is the budget that the government run?

A

A budget surplus

27
Q

What are Net Savings equations (2)

A

NS = Invest. - NX
or
NS = Private + Public Savings

28
Q

What is the public saving equation?

A

Ps = T - G
Tax revenue - Gov expenditures

29
Q

What is the private savings equation?

A

Spr = Y - T - C
Income - Tax - Consumption

30
Q

What happens to the equilibrium national income if MPD gets smaller

A

It decreases

31
Q

The value of the multiplier for an open economy with a government is ______ than for a closed one without government

A

smaller

32
Q

An increase in the net tax rate _______ the value of the MPD and ________ the value of the simple multiplier

A

decrease
decrease

33
Q

When does a recessionary gap occur?

A

When the current equilibrium national income is less than the potential national income

34
Q

Written in this format: ( ) / ( ),
what is the national income equation

A

Y = A / (1 - MPD)

35
Q

As the marginal propensity to import increases, what happens to the marginal propensity to spend?

A

It decreases, thus decreasing the multiplier

36
Q

When the net tax rate increases, what happens to the MPD?

A

It decreases, thus decreasing the multiplier

37
Q

In the aggregate expenditure​ model, the assumption of a constant price level implies what?

A

It implies that firms are able and willing to produce any amount of output that is demanded without requiring price changes

38
Q

What can firms do when they have excess capacity?

A

They can respond to changes in demand by altering their production and sales

39
Q

When can we expect national income to be demand-determined? (2)

A

1- When firms are price setters
2- When there are unemployed resources and firms have excess capacity

40
Q

In the presence of taxes, the marginal propensity to consume out of national income is _______ the marginal propensity to consume out of disposable income

A

less than

41
Q

What is the magnitude of stabilization policy so difficult to determine

A

The gap between actual and potential GDP is uncertain.

42
Q

Output may be demand determined if? (2)

A

There are unemployed resources
Firms have excess capacity

43
Q

Stabilization policy is used to __________ the economy’s cyclical fluctuations and thereby stabilize national income.

A

Reduce

44
Q

The simple multiplier is __________ when government and foreign trade are included, and the AE curve is __________

A

smaller
flatter

45
Q

A depreciation of the Canadian dollar causes the net export (NX) function to

A

shift upward and become flatter

46
Q

The simple multiplier is lowered when the net tax rate is

A

raised

47
Q

On what spending decisions do exports depend on?

A

Foreign households and firms

48
Q

What is the most important change in international relatives prices?

A

A change in the exchange rate

49
Q

What is the only case when there is no pressure for output to change?

A

When National income = desired aggregate expenditure

Macro Econ (14 decks)

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