Summary chapter 10 AD nov 9 2010

Summary chapter 10 AD nov 9 2010 - Chapter10...

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Chapter 10  Aggregate Demand   
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Chapter 10 The Determinants of Aggregate Demand       The Investment and Saving Market      The Income Approach to Measuring GDP  The Aggregate Demand Curve   Shifts in the Aggregate Demand Curve    
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The Determinants of  Aggregate Demand Aggregate Demand     The total demand for all final goods and  services in the economy.  Equal to C + I + G + (X - M). 
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The Determinants of  Aggregate Demand Consumption (C)      Accounts for almost 60% of total  economic activity.  Determined by:  After-tax or  disposable income Interest rates.  
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The Determinants of  Aggregate Demand Consumption (C)   Average propensity to consume  ( APC )  -  the fraction of total disposable  income that households spend on  consumption.   APC = Consumption Disposable Income
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 The Determinants of  Aggregate Demand Consumption (C)   Marginal propensity to consume ( MPC )   the additional consumption resulting  from an additional dollar of disposable  income.   MPC = Consumption   Disposable Income
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The Determinants of  Aggregate Demand Investment (I)        Approximately 20% of GDP.   Highly unstable, subject to economic,  social, and political variables.  Good business conditions “induce” firms  to invest. 
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 The Determinants of  Aggregate Demand Net Exports (X-M)        Open economy  - models that include  international trade effects.  Exports  - Canadian-made goods and  services sold to foreign customers. Imports  – goods and services bought  from foreign suppliers. 
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 The Determinants of  Aggregate Demand Net Exports (X-M)        Net exports  - the difference between the  value of exports and the value of imports.  Trade surplus  – positive net exports  (exports > imports); increases aggregate  demand.   Trade deficit  – negative net exports  (exports < imports); decreases aggregate  demand. 
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 The Investment and  Saving Market Investment Demand Curve         Shows the dollar amount of investment at  different real interest rates.  Downward sloping.  Reflects the fact that investment spending  varies inversely with the real interest rate. 
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The Investment and  Saving Market Investment Demand Curve         At high rates of interest, firms will only  pursue investments with even higher  expected rates of return.  As real interest rates fall, projects with  lower rates of return become profitable.  
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 The Investment and  Saving Market
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This note was uploaded on 03/30/2011 for the course ECON 2200 taught by Professor N/a during the Fall '10 term at Algonquin College.

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Summary chapter 10 AD nov 9 2010 - Chapter10...

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