Chapter 8 Flashcards
Aggregate demand
Total demand on all final goods and services produced domestically during a given period. (how much is spent on Canadian final goods and services)
Autonomous Consumption
Consumption that does not depend on income. We still have to consume even if our income is 0. Doesn’t depend on ‘yd’
Marginal propensity to consume (MPC)
slope of the consumption function by how much consumption changes when ‘yd’ changes by $1. What % of any extra money you get you will consume. How much you will consume if you get some extra income. 0 =< MPC =<1
Average Propensity to consume
What % of the yd you have now to consume.
APC >/<1
Positive relation
the two variables move in same direction
Negative relation
The two variable, move in opposite direction
Net exports, X-M
Trade balance
Exchange rate
price of foreign currency, how many $CAD needed to buy 1 unit of a foreign currency. If exchange rate increases, instead of 2CD$ to get 1 Euro we need 5CD$ to get 1 Euro, making the Canadian goods and services cheaper as the $CAD depreciates.
Foreign Income
if foreign income increases, foreigners are now rich so they will buy more of our goods and services thus increasing out net exports
Domestic income
if our income increases, we are now rich, we will import more from other countries thus our net exports decrease
Intrest rate
if our interest rate increases then CAD$ offers a higher return and demand on CAD$ causing the $ to appreciate. Our goods are now more expensive to foreigners and our net export decreases
Real Interest Rate (r)
Causes a change in Quantity of Investment movement along the i curve. any changes in r causes a movement from one point to another on same I curve.
Quantity of Investments Qi
point on the i curve
Investment i
the Whole curve.
Private Savings
What households save
- disposable income - consumption (y - T - c)
Public Savings
What the government saves. Tax revenue - Government Spending (T - G)
National saving
Total savings in the economy. Private saving (y - T - c) + Public savings (T - G)
Quantity of saving (Qs)
Point of saving curve at a particular interest rate
Saving (S)
Whole Curve
Shift on I or S
This will affect the equilibrium interest rate and quantity of funds
Simultaneous shift
both S and I shift at the same time.
Real wealth effect
Price rises, real wealth purchasing power our wealth decreases so consumption decreases leading to a decrease to GDP
Interest Rate Effect
demand on money increases so interest rate increases and C + I decreasing leading to a decrease in GDP
Trade effect “Open economy effect”
Our goods and services are now more expensive to foreigners who will now buy less from our goods. Net exports ( X - M) decrease so GDP does aswell
Change in Price level
Causes a movement from one point to another on the same AD curve ( P up = Y down)
