Chapter 7 Flashcards
What are Desired Government Purchases (G)?
Desired government purchases are considered part of autonomous aggregate expenditure. They are assumed to be constant and not directly related to national income.
Example sentence: Government spending on infrastructure projects.
What are Net Taxes?
Net taxes are taxes minus transfer payments, affecting aggregate expenditure indirectly through households’ disposable income.
Example sentence: Net taxes include income tax and sales tax.
What is the Budget Balance?
The budget balance is defined as net tax revenues minus government purchases. When positive, there is a budget surplus; when negative, there is a budget deficit.
Example sentence: A budget surplus can be used to pay off government debt.
What are Exports and Imports in Foreign Trade?
Exports are foreign purchases of Canadian goods and do not depend on Canadian national income. Desired imports increase as national income increases, leading to a decrease in net exports as national income rises.
Example sentence: Exporting cars to the United States.
How Do International Relative Prices Affect Net Exports?
A depreciation of the Canadian dollar makes Canadian goods cheaper relative to foreign goods, increasing exports and decreasing imports, thus shifting the net export function up. An appreciation has the opposite effect.
Example sentence: Currency exchange rates impact net exports.
What is Equilibrium National Income?
National income is in equilibrium when desired aggregate expenditure equals actual national income. The equilibrium condition is AE = Y.
Example sentence: Achieving equilibrium through changes in spending.
What is the Slope of the AE Function in a Model with Government and Foreign Trade?
The slope of the AE function is determined by the marginal propensity to consume (MPC) out of disposable income, the net tax rate (t), and the marginal propensity to import (m).
Example sentence: Calculating the slope of the AE function.
How Do Taxes and Net Exports Affect the Simple Multiplier?
The presence of taxes and net exports reduces the value of the simple multiplier, as every increase in national income induces less new spending compared to a model without taxes or imports.
Example sentence: Understanding the impact of taxes on the multiplier.
How Do Government Purchases Affect Equilibrium National Income?
An increase in government purchases shifts the AE function up, increasing the equilibrium level of national income.
Example sentence: Government stimulus packages boosting the economy.
How Do Changes in Net Tax Rates Affect Equilibrium National Income?
A decrease in the net tax rate causes the AE function to rotate upward, increasing the equilibrium level of national income.
Example sentence: Tax cuts leading to higher disposable income.
How Do Increases in Exports Affect Equilibrium National Income?
An increase in exports, due to higher foreign demand, a lower Canadian price level, or a depreciation of the Canadian dollar, shifts the AE function up, raising the equilibrium level of national income.
Example sentence: Expanding export markets for economic growth.
What is Demand-Determined Output?
Output is demand determined when prices are assumed not to change in response to an increase in desired expenditure, reflecting situations with unemployed resources or firms as price setters.
Example sentence: Determining output based on consumer demand.
What are Taxes, Transfers, and Net Taxes?
Taxes are compulsory contributions to government revenue. Transfers are payments made by the government to individuals without any return of goods or services. Net taxes are calculated as taxes minus transfers.
Example sentence: Social security payments as transfers.
What is the Net Export Function?
The net export function represents the difference between exports and imports at various levels of national income.
Example sentence: Analyzing the impact of trade imbalances.
What is the Simple Multiplier in an Open Economy with Government?
The simple multiplier in an open economy with government considers the effects of taxes and imports on aggregate expenditure, resulting in a smaller multiplier compared to a closed economy.
Example sentence: Calculating the multiplier in an international context.
