vigtige ting Flashcards
Consumption:
- equation
- determinants
- slope direction
C = c0 + c1 YD
YD = Y - T
Positive relation between YD and C
c0
Positive relation between c0 and C
c1 (marginal propensity to consume)
Positive relation between c1 and C
Upward sloping (positive relations)
Investment:
- equation
- determinants
- slope direction
I = I (Y,i)
Y
Positive relation between I and Y (investment is necessary for a high level of production)
i
Negative relation between I and i (expensive to borrow money => investment goes down)
Money demand:
- equation
- determinants
- slope direction
Md = $Y L(i)
i negative relation (higher interest rate => people prefer bonds)
i up => move along to the left
i down => move along to the right
$Y positive relation (higher nominal income => higher level of transactions => increased demand for money)
$Y up => Md shifts right
$Y down => Md shifts left
downward sloping (negative relation between axes: i and Md)
Imports:
- equation
- determinants
- slope direction
IM = IM(Y,ε)
Y
Positive relation between imports and domestic income
(increased overall demand for goods)
ε
Positive relation between real interest rate and imports
(higher price of domestic goods in terms of foreign goods, more people wanna import goods)
Exports:
- equation
- determinants
- slope direction
X = X (Y*,ε)
Y*
Positive relation between exports and foreign income
(increased overall demand for goods)
ε
Negative relation between real interest rate and imports
(higher price of domestic goods in terms of foreign goods, lower level of exports)
Demand for goods in closed economy
Z = C + I + G
Demand for goods in open economy
Z = C + I + G + X - IM
Autonomous spending
C + I + G
Any increase in autonomous spending, will lead to a bigger increase in output (more than 1:1) due to the multiplier
Multiplier
1/(1-c1)
the closer c1 is to 1, the larger the multiplier
Demand for domestic goods in open economy
Z = C + I + G + X/ε - IM
Demand for bonds
Bd = wealth - demand for money
example
wealth = $50,000
yearly income = $60,000
Md = $Y(0.35-i)
Bd = $50,000 - $60,000(0.35 - i)
The interest parity condition (IPC)
i ≈ ?
Domestic interest is equal to foreign interest minus expected appreciation rate of domestic currency
The interest parity condition (IPC)
E = ?
E = (1+i)/(1+i*) Ee
Current exchange rate depends on domestic and foreign interest rate and expected future exchange rate (taken as a given)
The interest parity condition (IPC)
i goes up and ?
E goes up
The interest parity condition (IPC)
i* goes up and ?
E goes down
The interest parity condition (IPC)
Ee (expected future exchange rate) goes up and ?
E goes up
appreciation
flexible
increased exchange rate
it gets cheaper to buy foreign goods
depreciation
flexible
decreased exchange rate
it gets more expensive to buy foreign goods
devaluation
fixed
decreased exchange rate
it gets more expensive to buy foreign goods
revaluation
fixed
increased exchange rate
it gets cheaper to buy foreign goods
wage-setting relation
- function
- determinants
- slope looks
W/P = F(u,z)
u
negative relation between real wage and unemployment
(the higher employment, the higher the wages due to bargaining power - assuming that the price level doesn’t change at the same time)
z
positive relation between real wage and z (bargaining power pushes wages up)
downward sloping
price-setting relation
- function
- determinants
- slope looks
W/P = 1/(1+m)
m
negative relation between real wage and mark-up (the higher the prices, the lower the purchasing power)
vertical line
WS and PS
if m or z increases?
the intercept of WS and PS = natural level of unemployment
natural level of unemployment increases
m goes up => PS shifts down
z goes up => WS shifts up
WS and PS
if m or z decreases?
the intercept of WS and PS = natural level of unemployment
natural level of unemployment increases
m goes down => PS shifts up
z goes down => WS shifts down
Phillips curve as a function of unemployment
πt - πte = -∝(ut-un)
Phillips curve as a function of output
π - target = ∝/L (Y-Yn)
Real exchange rate ε
ε=EP/P*
real exchange rate = (nominal exchange rate * domestic price level)/foreign price level
Nominal interest rate
the price of domestic currency in terms of foreign currency
Borrowing rate
r + x
real policy rate + risk premium
real policy rate
r = i - πe
