EC140 Lecture Notes - Lecture 11: Aggregate Demand, Canadian Dollar, Government Spending
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Ec140 chapter 24/25 lecture 11: an increase in the us income would cause an increase in the price level in the short-run, a reduction in aggregate demand would cause a long-run reduction in the price level. Long-run effect of a permanent decrease in autonomous exports is lower price level with no change in gdp. Lower output: getting the economy back to the long-run equilibrium state, may work faster than economic adjustment process. Increases aggregate demand: for i(cid:374) atio(cid:374)ar(cid:455) gaps, decreases aggregate demand. Increasing marginal tax rates: employment insurance/welfare systems, discretionary fiscal policy, cha(cid:374)gi(cid:374)g s(cid:272)al poli(cid:272)(cid:455) is the (cid:449)ork of go(cid:448)er(cid:374)(cid:373)e(cid:374)t. Involves decision and execution lags: may result in months of delay in enacting policy, execution lags longer for spending than for tax changes. Sho(cid:448)el-read(cid:455) proje(cid:272)ts: per(cid:373)a(cid:374)e(cid:374)t ta(cid:454) (cid:272)ha(cid:374)ges ha(cid:448)e a larger e e(cid:272)t tha(cid:374) te(cid:373)porar(cid:455) o(cid:374)es, permanent taxes make people feel richer for them to spend more money. If investment falls - future gro(cid:449)th rates (cid:373)a(cid:455) (cid:271)e a e(cid:272)ted.
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