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ECON 110 (192)
Chapter 22

Chapter 22 Notes
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School
Queen's University
Department
Economics
Course
ECON 110
Professor
Ian James Cromb
Semester
Winter

Description
Chapter 22 Notes  G is autonomous to GDP, depends on government policy decisions  Net Taxes (T): total tax revenue received – transfer payments made  Net Tax Rate (T = tY) where t is the net tax rate or the marginal propensity to tax (do not associate with specific tax)  Budget Balance = T – G (public saving when positive)  Net exports are an autonomous expenditure  Imports = IM = mY where m is the marginal propensity to import (amount desired imports rise when income rises by $1)  Net Exports = NX = X = mY  A rise in Canadian prices relative to those in other countries reduces Canadian net exports (X shifts down, IM rotates up)  With taxes, YD(disposable) is less than Y (national) C = autonomous consumption + (marginal propensity to consume)(1-tax rate)(national income) C = 30 + (0.8)(1-0.1)Y  Aggregate Expenditure C = a + bYD-> consumption I -> autonomous expenditure G -> autonomous government purchases T = tY -> net tax revenue X -> autonomous exports IM = mY -> imports C = a + b(1-t)Y AE = C + I + G (X – IM) AE = a + b(1 – t)Y + I + G + (X = mY) AE = [a + I + G + X] + [b(1 – t) – m]Y *Autonomous Expenditure *Induced Expenditure  Marginal propensity to spend: z = b(1 –
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