MGEB06H3 Lecture 12: Macroeconomics NotesL12P2

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Macroeconomics notes: lecture twelve (chapter nineteen part four): Expansionary monetary policy taken a change in e into consideration. The central bank lowers the interest rate by 0. 5 percentage point (i = 0. 015), which also causes. Logic: when both i & e change, there will be changes in iplanned, x & im. Cost of borrowing iplanned : Iplanned = ( d i) = [ 5000 ( 0. 005)] = 25. Dc depreciates domestic goods become less expensive x : Dc depreciates domestic goods become less expensive im : X = ( x1 efc/dc) = [ 15 ( 0. 25)] = 3. 75. Im = im2 efc/dc = [25 ( 0. 25)] = 6. 25. Overall, ae0 = iplanned + x im = 25 + 3. 75 ( 6. 25) = 35. Aeplanned = (00 + ae0) + [mpc (1 t tr) im1] y. Aeplanned = [1900 + 35] + 0. 5y = 1935 + 0. 5y.

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