lec26 - Exchange Rate AE Y r M P Y e $ C+I+G+EX-IM M S M d...

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1 REVIEW MICROECONOMICS MACROECONOMICS 4 COMPETITION Free entry and exit: P = AC Firm cannot affect market price: P = MC 5 P = AC = MC implies P = minAC p* Q AC MC 8 MONOPOLISTIC COMPETITION Free entry and exit: P = AC Firms’ output decisions affect prices: P > MC 9 P = AC > MC implies P > minAC p Q AC MC 12 MONOPOLY Entry and exit are not free: P > AC Firm’s output decision affects its price: P > MC
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15 EXTERNALITIES External costs: Firms produce too much. External benefits: Consumers buy too little. 18 Problem : People will not truthfully report their WTP if they are charged the WTP that they report. Partial solution : With ballot propositions, the amount that a person is charged is independent of the person’s vote. PUBLIC GOODS 23 MACROECONOMICS Outcome variables: Y, r, P, e Control variables: G, T, M S A change in a control variable affects ALL outcome variables. Each outcome variable depends on other outcome variables. Must follow full effects. 24 Aggregate Output General Price Level Interest Rate
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Unformatted text preview: Exchange Rate AE Y r M P Y e $ C+I+G+EX-IM M S M d AS AD S $ D $ + + + +--Y* r* e* P* 30 Expansionary fiscal policy: Increases Y. More output. Increases r. Less investment and growth. Increases P. Inflation. Increases e. Dollar appreciates. Hurts exports. Amount of inflation versus increased output depends on how close we are to full employment. Fiscal policy is hard to implement and time correctly. 31 Expansionary fiscal policy Helps economy in short run at expense of economy in long run. 36 Expansionary monetary policy: Increases Y. More output. Decreases r. More investment and growth. Increases P. Inflation. Decreases e. Dollar depreciates. Helps exports. Amount of inflation versus increased output depends on how close we are to full employment. 38 Monetary policy is easier to implement and time correctly, but effect is harder to predict. Helps economy in short and long run....
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This note was uploaded on 04/03/2008 for the course ECON 1 taught by Professor Martholney during the Fall '08 term at University of California, Berkeley.

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lec26 - Exchange Rate AE Y r M P Y e $ C+I+G+EX-IM M S M d...

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