chapter 22

chapter 22 - We are building a model set of assumptions...

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 We are building a model set of assumptions (highly simplified views of the world)  Provide insights on how the world works.  CH 22 Adding Government and trade . Endogenous and exogenous  Exogenous value that is determined outside the model we are considering Endogenous is determined by model we are considering Why should marginal propensity to consume be less than one? Answer page 502 MPC=1 not very forward looking Income goes up but don’t change consumption MPC=0 Why did they lower interest rate to stimulate economy. If interest fall this model predicts that desired investment will rise,  Output is demand determined.  What can affect the AE function business confidence/ changes in wealth  collapse of stock market. 22.1 introducing government Government purchases Government purchase of goods and services (G) are part of desired  aggregate expenditures. - Not including transfer payments  Gov spending not to use Use gov purchases.  The govermenent is purchaser of goods and services not transfer  payments. A Gov buys airplane they purchase goods and services that is what  we call G.
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Net tax revenues  Net taxes (T) are total tax revenues net of transfer payments. Taxes and transfer are the same type of transaction transfer should be thought of  as a negative tax. We assume net taxes are given by:
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This note was uploaded on 04/07/2009 for the course ECON 295 taught by Professor Ragan during the Spring '08 term at McGill.

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chapter 22 - We are building a model set of assumptions...

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