Lecture 15 Notes

Lecture 15 Notes - ECN 211 Macroeconomic Principles L15...

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03/03/10 1 ECN 211 Macroeconomic Principles L15 Aggregate Demand (continued)
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03/03/10 2 RECAP: Aggregate Demand Aggregate Expenditures : Households : Consumption (C) Businesses : Investment (I) International Sector : Net Exports (NX=X-M) Government : Government Spending AD = C + I + G AD =
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03/03/10 3 Factors that affect Government Spending As spending is set by government authorities will assume it is independent of any other factors. It is exogenous
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03/03/10 4 Factors that affect Net Exports NX = (X-M) Exports are determined by conditions in the rest of the world (foreign income, tastes, etc). Imports are determined by domestic factors
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03/03/10 5 Income : As domestic income increases consumers will consume more foreign goods therefore NX falls As foreign income increases foreign consumers will consume more of our domestic goods therefore NX increase Exchange rate A depreciation of the domestic currency makes domestic goods cheaper and foreign goods more expensive. Therefore a depreciation of the currency causes NX to increase
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6 Prices of foreign goods: If foreign goods increase in price then they become relatively more expensive than domestic goods. Therefore an
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Lecture 15 Notes - ECN 211 Macroeconomic Principles L15...

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