Midterm 5 Flashcards
What are determinants of Exports
-exports depend on income in other countries
-exchange rate
-price level
-income abroad
Exports would be considered as what?
Injections
What are determinants of Imports
-Income in Canada
-Exchange rate
-Price level
Marginal propensity to import = ?
^M / ^Y
Imports would be considered what
A leakage
The higher the GDP in Canada means what for imports
Higher the imports
What is Aggregate Demand
Total demand in economy at various prices
What causes a Negative slope of AD
-wealth effect
-interest rate effect
-foreign trade effect
What causes a Negative slope of Individual Demand
-substitution effect
-income effect
-law of diminishing MU
If Price goes up what happens to the purchasing power of wealth
Purchasing power of wealth goes down
When purchasing power of wealth goes down what must happen to return it to normal
Supply must go up
Consumption must go down
What is Fractional Reserve system
a system where only a fraction of money that’s deposited are held in chatter banks or with Bank of Canada
What is Fiscal Policy
its used by the gouv in order to remove recessionary and inflationary gaps
What are the two parts of Discretionary Fiscal Policy
-Expansionary Fiscal Policy
-Contractionary Fiscal Policy
What is Non-Discretionary Fiscal Policy
Automatic or Built-in stabilizers
How is the Gouvs Spending Financed
Tax Collections
Borrowing from public by selling Gouv bonds
Borrowing from Bank of Canada
If G > T then what is it
A budget deficit
If G = T then what is it
A balanced budget
If T > G then what is it
A Budget Surplus
What are some examples of a Non-Discretionary Fiscal Policy
Gouv Transfer Payment
Progressive taxing System
Automatic stabilizers do what
They don’t allow a recession to become too severe and reduce the magnitude of fluxuations
What is a progressive tax system
As peoples income grow they pay more taxes
What are monetary functions
money as a medium of exchange
money as a store of value
money as a unit of account
What is fiat money
Money not backed by a precious metal
What are some components of money supply
Narrow Definition of Money
Broad Definition of Money
Commercial Banks in Canada are called what
Chartered banks
How does T go down
DI = C + S
What happens when there is a Contractionary fiscal policy
Decrease in G or a Increase in T or both to deal with inflationary gap
How do we make G go up
1/MPM + MPS
What happens when there is a Expansionary fiscal policy
Increase of G or decrease of T or both to deal with recessionary gap
What are some Issues with Fiscal Policy
Time Lags
Crowding out effect
Net Export effect
Political Business cycle
Budget deficit and public debt
Debt to GDP ratio
What are the three parts of time lags
Recognition lag
Administrative lag
Operational lag
Debt to GDP ratio = ?
Debt / GDP
What is the crowding out effect
increase in G spending by borrowing from public
What is the political business cycle
if G increases spending and reduces taxes, then there would be inflation
