The Open Economy and the ExchangeRate Regime
(The Mundell-Fleming Model)
(Ref: Ch. 12)
Lecture 10 Slides
Dr. Reza Ghaeli
ECO209Y1Y L5101
Fall 2014
University of Toronto
TheMundellFleming(MF)Model
Keyassumption:
Smallopeneconomywithperfectcapitalmobility

Prof. Gustavo Indart
Department of Economics
University of Toronto
ECO 209Y
MACROECONOMIC THEORY
Solution to Problem Set 9
1. a)
First, we must obtain the expression for the aggregate expenditure function:
AE = C + I + G
= (60 + 0.8YD) + (200 20 i + 0.2 Y

Prof. Gustavo Indart
Department of Economics
University of Toronto
ECO 209Y
MACROECONOMIC THEORY
Solution to Problem Set 3
(Odd numbers only)
1. a)
First, we must obtain the aggregate expenditure function:
AE = C + I + G
= C + c YD + I + G
= C + c (Y t Y

Prof. Gustavo Indart
Department of Economics
University of Toronto
ECO 209Y
MACROECONOMIC THEORY
Solution to Problem Set 4-5
(Odd numbers only)
1. a)
First, we must obtain the aggregate expenditure function:
AE = C + I + G
= ( C + c YD) + ( I b i + f Y) +

Department of Economics
University of Toronto
Prof. Gustavo Indart
October 18, 2013
ECO 209Y
MACROECONOMIC THEORY AND POLICY
Term Test #1
SOLUTIONS
LAST NAME
FIRST NAME
STUDENT NUMBER
Indicate your section of the course:
Monday, 2-4 L0101
Tuesday, 2-4 L02

Prof. Gustavo Indart
Department of Economics
University of Toronto
ECO 209Y
MACROECONOMIC THEORY
Solution to Problem Set 8
(Odd numbers only)
1. a)
First, we must obtain the expression for the aggregate expenditure function:
AE = C + I + G + NX
= (60 + 0.

Department of Economics
University of Toronto
Prof. Gustavo Indart
December 3, 2014
ECO 209Y
MACROECONOMIC THEORY AND POLICY
SOLUTIONS
Term Test #2
LAST NAME
FIRST NAME
STUDENT NUMBER
Indicate your section of the course:
Tuesday, 10-12 L0101
Tuesday, 2-4

Department of Economics
University of Toronto
Prof. Gustavo Indart
October 24, 2014
ECO 209Y
MACROECONOMIC THEORY AND POLICY
Term Test #1
SOLUTIONS
LAST NAME
FIRST NAME
STUDENT NUMBER
Indicate your section of the course:
Tuesday, 10-12 L0101
Tuesday, 2-4

Prof. Gustavo Indart
Department of Economics
University of Toronto
ECO 209Y
MACROECONOMIC THEORY
Solution to Problem Set 16
1. a)
The money multiplier is:
1 + cu
1 + 0.15
1.15
mm = = = = 4.6
cu + re
0.15 + 0.10
0.25
b) If the public already holds all the

Prof. Gustavo Indart
Department of Economics
University of Toronto
ECO209Y
MACROECONOMIC THEORY
Solution to Problem Set 6
(Odd numbers only)
1. a)
Items that enter positively into the current account balance are:
Exports of merchandise
Travel by foreigner

Lecture 16
Money supply is determined by Bank of Canada, Commercial Banks, and public as a result it is an
endogenous factor
Cash Reserve: Currency that is held by commercial banks in their vaults and deposits they hold at
commercial bank.
Commercial ba

Lecture 10-11
AS curve shows how much real output firms produce at each price level.
Change in nominal GDP can be broken down into change in P and change in Y
Keynesian Model: When there is high unemployment, an increase in nominal Y is mainly due to ch

Lecture 7
We are assuming fixed exchange rate
No Capital Mobility: When balance of payment equals balance in current account so BP curve is vertical.
a=0
Increase in real exchange rate (RER) makes Canadian goods less expensive therefore it makes
Canada m

Lecture 8
Exchange rate depreciation means $CAD appreciates and vice versa
Flexible exchange rate and perfect capital mobility:
Increase in Autonomous Exports: As autonomous exports increase, AE1 increases to AE2 and as
a result IS curve shifts to the ri

Lecture 9
To draw aggregate demand (AD) curve, we see how equilibrium in IS and LM curve
changes as price level changes, while holding autonomous AE and M constant.
Derivation of AD curve: To draw AD curve, we need price level to change. As price level
i

Prof. Gustavo Indart
Department of Economics
University of Toronto
ECO209Y
MACROECONOMIC THEORY
Solution to Problem Set 7
(Odd numbers only)
1. a)
First we find the IS curve. The AE curve is:
AE = C + I + G + X Q
=
=
C + I + G + X Q + [c (1 t) + f m] Y b

Prof. Gustavo Indart
Department of Economics
University of Toronto
ECO 209Y
MACROECONOMIC THEORY
Solution to Problem Set 1-2
(Odd numbers only)
1. a) GDP = C + I + G + (X Q)
= 273,081 + 91,744 + 112,986 + (137,459 132,879)
= 482,391.
b) NNP = GNP deprecia

15
CHAPTER
A Dynamic Model of Aggregate Demand
and Aggregate Supply
Questions for Review
1. The equation for the dynamic aggregate supply curve is:
t = t1 + (Yt Yt) + t.
Recall that is a positive parameter that measures how rapidly firms adjust their
pric

A Dynamic Model of Aggregate
Demand and Aggregate Supply
(Ref: Ch. 14)
Lecture 12 Slides
Dr. Reza Ghaeli
ECO209Y1Y L5101
Fall 2014
University of Toronto
LearningObjectives
Howtoincorporatedynamicsintothe
ADASmodelwepreviouslystudied
HowtousethedynamicAD

Stabilization Policy
(Ref: Ch. 15)
Lecture 13 Slides
Dr. Reza Ghaeli
ECO209Y1Y L5101
Fall 2014
University of Toronto
BusinessCycles
GDPGrowthCanada
GrowthrateofU.S.realGDP
Percent
change
from 4
quarters
earlier
Average
growth
rate
StabilizationPolicyDebat

Government Debt and Budget Deficits
(Ref: Ch. 16)
Lecture 15 Slides
Dr. Reza Ghaeli
ECO209Y1Y L5101
Fall 2014
University of Toronto
Defining the Government Sector
The government sector in Canada is the sum
of:
the federal government
provincial and terr

Money Supply and Money Demand
(Ref.: Ch. 19)
Lecture 14 Slides
Dr. Reza Ghaeli
ECO209Y1Y L5101
Fall 2014
University of Toronto
MoneySupplyDetermination
Threegroupsaffectthemoneysupply
Thecentralbankprintsmoney(papermoneyor
banknotes)
Depositoryinstitut

The Financial System:
Opportunities and Dangers
(Ref: Ch. 20)
Lecture 16 Slides
Dr. Reza Ghaeli
ECO209Y1Y L5101
Fall 2014
University of Toronto
What The Financial System Does
1. Financing Investment
The financial system helps channel funds from savershou

Building the IS-LM Model
(Ref: Ch. 10)
Lecture 8 Slides
Dr. Reza Ghaeli
ECO209Y1Y L5101
Fall 2014
University of Toronto
Context
Chapter 9 introduced the model of aggregate demand and
aggregate supply
Long run:
prices flexible
output determined by fact

Aggregate Supply and the Short-Run Tradeoff
Between Inflation and Unemployment
(Ref: Ch. 13)
Lecture 11 Slides
Dr. Reza Ghaeli
ECO209Y1Y L5101
Fall 2014
University of Toronto
Introduction
In previous chapters, we assumed the price level P was
stuck in th

Goods Market Equilibrium In An
Open Economy
(Ref.: Ch. 5)
(Appendix Excluded)
Lecture 3 Slides
Dr. Reza Ghaeli
ECO209Y1Y L5101
Fall 2014
University of Toronto
Goods Market Equilibrium
Y = C + I + G + NX
Balance of Payments account records transactions
w

Applying the IS-LM Model
(Ref: Ch. 11)
Lecture 9 Slides
Dr. Reza Ghaeli
ECO209Y1Y L5101
Fall 2014
University of Toronto
EquilibriumintheIS LMModel
TheIS curverepresents
equilibriuminthegoods
market.
r
LM
Y C ( T ) I (r ) G
Y
The LM curve represents
money

Introduction to Business Cycles
(Ref: Ch. 9)
Lecture 7 Slides
Dr. Reza Ghaeli
ECO209Y1Y L5101
Fall 2014
University of Toronto
What are Business Cycles?
Business cycles are fluctuations in aggregate
economic activity around long term growth path
Features o

Economic Growth
The Economy in the Very Long Run
(Ref.: Ch. 7 & Appendix to Ch. 8)
Lecture 6 Slides
Dr. Reza Ghaeli
ECO209Y1Y L5101
Fall 2014
University of Toronto
EconomicGrowth
Acountrysstandardoflivingdependsonits
savingrate,populationgrowthandtechnol

National Income: Where It Comes
From and Where It Goes
(Ref.: Chs. 3, 17-18)
Lecture 2 Slides
Dr. Reza Ghaeli
ECO209Y1Y L5101
Fall 2014
University of Toronto
Three Modules of Macroeconomic Model
OutlineofMacroeconomicModel
Supplyside
factormarkets(suppl