ECN 204 Lecture 4: Week 4.docx
11 Apr 2015
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Other factors affecting i: future expectations (+, availability of resources (+, cost of resources (-, technology (+, existing capital stock (-, capital means tools for production machinery, government regulations and taxes (-) a. If payroll taxes are high, the discourage businesses. Keynesian theory: an economy attains equilibrium when aggregate expenditure (ae) = value of goods + services produced equals (aggregate output/gdp) (income) Equilibrium occurs when aggregate expenditure = aggregate output (ao)/gdp/income (y) Ae = c + i + g +(x-m) Simple model -> aggreate expenditure = c+i+g+(x-m: closed economy, no govt. According to keynes, i is autonomous does not depend on or change in. S+m = i + x: closed eco without govt, open eco without govt, open eco with govt. Exchange rates(er) if value of canadian $ goes up, x go down (-) X taste & preferences (+) if canadian products are popular, it increases exports. Gdp of the row (rest of the world) (+)
