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Study Guide

EC140- Final Exam Guide - Comprehensive Notes for the exam ( 78 pages long!)


Department
Economics
Course Code
EC140
Professor
Ken Jackson
Study Guide
Final

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WLU
EC140
Final EXAM
STUDY GUIDE

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Tuesday, January 31, 2017
Econ Chapter 23 Lecture Notes:
What Happens if the Price Level Rises?
Changes in Consumption:
-When prices rise, the money that people hold can buy fewer goods.
-People are effectively poorer and consumption falls.
-A rise in the price level lowers the real value of money.
-Similarly, a fall in the price level raises the real value of money.
C = a + b(1 - t)Y
-A rise in the price level leads to a decrease in wealth and in autonomous
consumption (reduction in a) and to a downward shift in the AE function.
-A fall in the price level leads to a rise in wealth and in autonomous consumption
(increase in a) and to an upward shift in the AE function.
Changes in Exports:
-When the domestic price level rises, Canadian goods become more expensive
relative to foreign goods.
-Consumers in other countries reduce their purchases of Canadian-made goods.
-Exports decline.
-A rise in the domestic price level shifts the export function downward, which causes a
downward shift in the AE curve.
-Similarly, a fall in the domestic price level shifts the net export function upward and
the AE curve upward.
Aggregate Expenditure and the Price Level:
-An exogenous increase in the price level causes the AE curve to shift downward from
AE0 to AE1.
-The equilibrium changes from E0 to E1 and real GDP falls from Y0 to Y1.
!1
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Tuesday, January 31, 2017
Derivation of the AD Curve:
-As the price level rises from P0 to P1
to P2, the AE curve shifts downward
from AE0 to AE1 to AE2.
-In the bottom graph, a movement
occurs up along the AD curve.
-A change in the price level causes a
shift of the AE curve but a moment
along the AD curve.
!2
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