MGEA06H3 Lecture Notes - Canadian Dollar, Consumption Function, Exchange Rate
selahanna2005 and 40086 others unlocked
2
MGEA06H3 Full Course Notes
Verified Note
2 documents
Document Summary
Chapter 22: adding government and trade to the short-run model. The government enters the model in the 3 ways: Spending on final goods and services (g) it is the government expenditure on final goods and services, we assume g is an autonomous variable (the value is fixed and given). If there is a change in government spending we call it a shock, a change in fiscal policies. Making transfer payments (tr) is inversely related to income. Budget balance (bb) = t tr g = sg. If sg < 0, then the government runs a budget deficit. If sg > 0, then the government runs a budget surplus. If sg = 0, then the government runs a balanced budget. Note: the budget balance and public saving (sg) are two sides of the same coin. When an economy trades with foreign countries, this economy is an open economy.