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ECO202 Test 1.docx

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Kathleen Wong

--GDP(Y)=Supply/Production/Output=C+I+G+(X-M) --Z=Demand of goods=C+I+G+(X-M) --Consumption Function: C=C +C (Y 0. C 1MPD=% of1each dollar of Y you consume. D --Goods Market Equlib: Y=Z=C +C (Y-T0+I(1, Y)+G S --Money Market Equlib: Demand for Liquidity(L)=M --Savings: Total Saving=Investments. Private: S=Y-T-C. Public: S=T-G. --Multiplier: Y=Z=1/(1-C ) bottom is always multiplier. Change Y=Change G*Multiplier 1 --Bonds: i=(FV-P )/B IntB.est rate is opportunity cost of holding money. High i means high return on bond. --Bond Demand= Wealth -M . d --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. D --LM Curve: Means (M/P) =M/P. Curve shifts left when sell bonds, shifts right when buy bonds. --Monetary Policy: Is central bank can change M through OMO but buying(expansionary) and selling(contractionary) bonds. --IS shifts when change in fiscal policy. LM shifts in change in monetary policy. --Real ER: €=(EP*)/P. e --Interest Parity Condition: i=i*t tE t+1–E)tE.tSecond part is expected dep. of CAD. If < better to purchase foreign bond. --What Determines Exports:1)Foreign Demand(Y*)-If Y* inc then X inc.2)Rea
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