Economics 2152A/B Lecture Notes - Price Level, Gdp Deflator, Production Function

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Chapter 2, National Income Accounting
The uses of private saving
S = I + CA
Spvt = I - Sgovt + CA (equation 1)
Equation 1 implies that an economy’s private saving can be used in three ways:
1. I firms borrow from private savers to finance investment (comparative static analysis)
2. When government runs a budget deficit (Sgovt < 0) it must borrow from private savers
3. When CA > 0 foreigners must borrow from Canadian private sector by selling to Canadians
some of their assets (ex. Bonds, Stock, etc.)
- If CA < 0, means borrowing from foreigners, by selling to them some of our assets
Spvt + Sgovt = I + CA
12 + 3 = 10 + 5 Lending to foreigners
12 3 = 10 -1 borrowing from foreigners
12 3 = 12 -3 borrowing from foreigners
12 +0 = 12 + 0 government’s budget is balanced, T = TR + INT + G. CA = NX + NFP, borrowing can still
have taken place, it just has to equal net exports, or vice versa.
Macroeconomic Variables Nominal Vs Real
Nominal variables are measured in terms of current market values, Qt * Pt Nominal output at time t
(at current dollar)
Changes in nominal variable can be broken down into changes in quantity and changes in price, that is
why economists use real variables
Advantage : aggregation of different types of goods and services at the current time
Disadvantage : Comparison of the value of an economic variable at two different points of time.
Real Variables are measured in terms of the “base year” prices Qt * Po
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Document Summary

Spvt = i - sgovt + ca (equation 1) Equation 1 implies that an economy"s private saving can be used in three ways: If ca < 0, means borrowing from foreigners, by selling to them some of our assets. 12 + 3 = 10 + 5 lending to foreigners. 12 3 = 10 -1 borrowing from foreigners. 12 3 = 12 -3 borrowing from foreigners. 12 +0 = 12 + 0 government"s budget is balanced, t = tr + int + g. ca = nx + nfp, borrowing can still have taken place, it just has to equal net exports, or vice versa. Nominal variables are measured in terms of current market values, qt * pt nominal output at time t (at current dollar) Changes in nominal variable can be broken down into changes in quantity and changes in price, that is why economists use real variables.

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