ECON 1B03 Lecture Notes - Canadian Dollar, Monetary Policy, Government Spending
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8 Mar 2014
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ECON 1B03 Full Course Notes
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Government can use only one policy, they cannot use both. Fiscal policy or monetary depending on exchange rate regime. Whether we have flexible or fix exchange rates. Increase in the money supply (expansionary monetary policy) That cause interest rate to down which cause investment to go up. A increase in the ad will increase in people"s income since more investment equals more spending which will ultimately lead to a increase in people"s income. A increase in income will cause people to want to spend more so the demand for money increases. Ms up, r down, i up, ad shift right, y up, md shift right. But in a small open economy where the canadian interest rate is less than the world interest rate. When people want to buy foreign assets and bonds they need to buy foreign currency which they will need to sell canadian currency in order to.
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