ECON 209 Lecture Notes - Lecture 5: Ceteris Paribus, Consumption Function, Exchange Rate

• School: McGill University
• Department: Economics
• Course: ECON 209
• Professor: Paul Dickinson

Document Summary

Government purchases of goods are services (g) are part of desired aggregate expenditures: not including transfer payments, including all levels of government- federal, provincial, territorial and municipal. Net taxes (t) are total tax revenues net of transfer payments. In our simple model, g is treated as autonomous while t is induced. Where t is the net tax rate (assumed autonomous, & average = marginal) T enters the ae function indirectly via the consumption function: C = a + byd = a + b(y-t) The budget balance is the diference between g and t: if g < t: a budget surplus ( public saving" > 0, if g < t: a budget deicit ( public saving" < 0) Canada"s exports are autonomous with respect to canadian gdp. Canada"s imports rise as canadian gdp rises: Ceteris paribus, changes in domestic gdp lead to changes in net exports, As y rises, the net exports decreases. As y decreases, the next exports increase.