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Macroeconomics - Chapter 22
McGill University Econ 295 - Ragan
11
Economics
Undergraduate 4
02/01/2012

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Term
Net Taxes
Definition
Total Tax revenue minus transfer payments, denotes T.
T=tY
t- net tax rate or marginal propensity to tax

Net tax revenues are positively related to national income.
Term
Budget Balance
Definition
The difference between the government revenues and its expenditures. If Revenues> expenditures, its a budget surplus
Term
Public Saving
Definition
Public saving is the difference between the government's tax revenues and its expenditures, hence its equal to the budget surplus.
Term
Effect of T on AE
Definition
Yd= Y - T, and the desired consumption depends on Yd
Term
Imports
Definition
As consumption rised imports will also increase. Because consumption rises with national income, we get a positive relationship between imports and national income.
IM=mY
m - is the marginal propensity to import, the amount by which the desired imports rise when national income rises by 1$. NX = X -mY
Term
Exports
Definition
Exports are autonomous with respect to Y. Hence NX= X - mY
Term
change in slope of net export function
Definition
Anything affecting the proportion on income that canadian consumers wish to spend on imports will change the slope on the net export function
Term
Effect of a rise of canadian price relative to foreign prices
Definition
Exports of Canadian products will decrease. Downward shift of the X curve.
Imports of foreign products will go up.
The IM curve will rotate up.
The next exports function shifts downward and becomes steeper.
Term
Effect of canadian dollar depreciating
Definition
Canadian goods will be cheaper for foreigners. Canadian exports rise.
Canadians find it more expensive to buy imported products, imports fall. There is a downward rotation of the IM curve.
The net exports function shifts up and becomes flatter.
Term
Relationship between consumption and national income in the presence of taxes
Definition
T= 0.1 Y
Yd= Y -T = 0.9 Y
C= 30 + (0.8) Yd
= 30 + (0.8) (0.9) Y

The presence of taxes, the MPC to consume out of national income is less than the MPC to consume out of disposable income.
Term
AE Function
Definition
AE= C+I+G+(X -IM)
= a+b (1-t)Y + I + G + (X - mY)
= [ a + I + G + X ] + [ b(1- t) -m]Y Autonomous exp - induced expenditure
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