EC290 Chapter Notes - Chapter 3: Inventory Investment, Consumption Function, Government Spending

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The trade of balance is the difference between exports and imports. If exports exceed imports, it"s called a trade surplus, and if exports are less than imports it"s called a trade deficit. Inventory investment is the difference between gods produced and goods sold in a year. (is) if production exceeds sales, firms accumulate inventory. If production is less than sales, firms decrease inventories. Z = c + i + g + x q. Yd is disposable income, the income that remains once consumers have received transfers from government and paid their taxes. When yd goes up, people buy more goods and vice versa. The function c(yd) is called the consumption function. This is a behavioral equation to indicate the equation reflects the behaviour of consumers. The parameter c1 is called the propensity to consume. If c1 is 0. 6 than an additional dollar of income increases consumption by x 0. 6 =

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