Class Notes (809,125)
Economics (486)
ECON 105 (187)
Lecture 3

Lecture 3 - Full Economy

5 Pages
73 Views

School
Simon Fraser University
Department
Economics
Course
ECON 105
Professor
Eldar Sehic
Semester
Summer

Description
Full Economy Government: Directly affects output (Y) through its spending AE = C + I + G + X – M = Y Indirectly affects output (Y) through its taxing AE = C + I + G + X – M = Y Government Spending (G): G = Go Government Taxing (T): T = Total Revenue – Transfer Payments (Tax Revenue, Public Firms …) T = TR – TP = tY t = ΔT/ΔY = Marginal Propensity to Tax (MPT) Primary Budget (PB): PB = T – G PB = TR – TP – G When PB > 0: It’s a primary budget surplus. When PB < 0: It’s a primary budget deficit. When PB = 0: It’s a balanced primary budget. Public Saving (PS): PS = PB = T – G National Saving (NS): NS = Private Saving + Public Saving NS = S + T – G Fiscal Policy: Expansionary Fiscal Policy (EFP): Increasing G or docreasing t to increase Y Contractionary Fiscal Policy (CFP): Decreasing G or inoreasing t to decrease Y Economy with Government but without Trade AE = C + I + G = C o bY +dI + o o AE = C +oI +oG + oY d (Yd= Y – T = Y – tY = (1 – t)Y) AE = C +oI +oG + o(1 – t)Y AE = AE + zY o AE = C + I + G o o o o z = b(1 – t) Example: Imagine an economy with the following parameters: Co= 10, b = 0.8, I o 20, G = o5, t = 0.25 AE = C + I + G = C o bY + d + o o = C o I o G + o(1 – t)Y = 10 + 20 + 25 + 0.8(1 – 0.25)Y AE = 55 + 0.6Y Equilibrium: AE = Y 55 + 0.6Y = Y 55 = Y – 0.6Y 55 = 0.4Y = (2/5)Y Yhat = 5(55)/2 = 275/2 Yhat = 137.5 SM = 1/(1 – z) = 1/(1 – 0.5) = 1/0.4= 5/2 SM = 2.5 Trade Exports (X): X = Xo Import (M): M = mY m = ΔM/ΔY = Marginal Propensity to Import (MPImport) Net Exports (NX): NX = X – M NX = Xo– mY Trade Share
More Less

Related notes for ECON 105

OR

Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Join to view

OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.