ECO202Y5 Study Guide - Midterm Guide: Opportunity Cost
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C1=mpc=% of each dollar of yd you consume. Interest rate is opportunity cost of holding money. -is curve: means solve for y. y inc and i dec though inc of i. If dec g or inc t, is shifts left. If inc g or dec t, is shifts right. -is curve slope down cuz: when interest rates rise, output falls directly though i and indirectly through nx. Curve shifts left when sell bonds, shifts right when buy bonds. -monetary policy: is central bank can change ms through omo but buying(expansionary) and selling(contractionary) bonds. -interest parity condition: it=it*+ (ee better to purchase foreign bond. -what determines exports:1)foreign demand(y*)-if y* inc then x inc. 2)real er- as dec, -marshal lerner condition: inc in leads to inc. in nx directly. This happens cuz x increases cuz canadian goods are relatively cheaper. Inc in leads to inc. in y indirectly. -to improve trade deficit:1)depreciate . 2)fiscal contraction (dec g)
