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Monday, September 17

Monday, April 16

  1. page Theories on Fiscal Policy edited ... Balance the budget over the life of the business cycle( during the recesion we use contraction…
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    Balance the budget over the life of the business cycle( during the recesion we use contractionary fiscal policy and during the contrctionary we use expansionary, it assumes that the size of the expansion is equal to the contractionary, but that is not necessarily the case)
    Problem: No guarantees that the size of the recessionary gap will equal the expansionary gap. It is difficult for the government to reign in spending and increase taxes during the expansionary periods.
    What are the three theories on fiscal policy? According to each theory, what should scal
    policy be used to do? What is the problem associated with each theory?
    1. Countercyclical
    Countercyclical scal policy is used to close recessionary or expansionary gaps.
    Countercyclical scal policy can cause the crowding eect. That is, government spending
    crowds out investment spending. This is because the government funds spending by
    selling bonds. The more bonds sold (or the more government debt), the higher the
    interest rates, which cause a decrease in the number of loans because it is too expensive
    for rms to borrow.
    2. Balanced Budget
    Balanced budget scal policy uses automatic stabilizers rather than discretionary scal
    policy.
    Balanced budget scal policy can cause a pro-cyclical eect. Eorts to balance the
    budget during a recessionary period can push the economy further into a recession.
    3. Cyclical Balanced Budget
    Cyclical balanced budget scal policy attempts to balance the budget over the business
    cycle. Countercyclical policies can then be used to close recessionary and expansionary
    gaps.
    The problem with cyclical balanced budget policies is that we do not know how long the
    business cycle will last. In order to be able to balance the budget over the business cycle,
    the length and magnitude of the recessionary gap needs to be equal to the expansionary
    gap, which is not always the case.

    (1): Dr. S. Powers, "Fiscal Policy" notes, slide 28, April 4, 2012
    (2): Dr. S. Powers, "Fiscal Policy" notes, slide 29, April 4, 2012
    (view changes)
    7:08 am
  2. page How Lending Creates Money edited ... Bank run When people go to the bank and to get money but the bank has run out of money. bank …
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    Bank run
    When people go to the bank and to get money but the bank has run out of money. bank reserves and the BOC are set up to fix this problem. The BOC instil confidence in the people, if the banks run out of money, the boc will borrow them.
    What is a bank run and how is it resolved?
    A bank run is when a bank runs out of cash. Banks not only hold people's money they also
    make money by providing loans. If a number of people choose to withdraw their money
    simultaneously then the bank my not have the cash on hand necessary to meet people's
    demand. In this case, chartered banks can borrow from other chartered banks (at the
    overnight target rate) or from the Bank of Canada (at the bank rate) to meet the needs of the
    bank's customer
    (
    9

    (view changes)
    7:05 am
  3. page Aggregate Demand (Definition and Why Downward Sloping) edited ... AD=C+I+G+(X-IM) {http://www.pcecon.com/notes/noteimages/ADAS/AD.gif} (2) The aggregate dema…
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    AD=C+I+G+(X-IM)
    {http://www.pcecon.com/notes/noteimages/ADAS/AD.gif} (2)
    The aggregate demand curve is downward sloping because of these 3 effects below:when prices goes up, these 3 cause real gdp to go down and when prices fall, real GDP increases
    real balance effect: prices go down > value of saving goes up > savings goes down > so consumption spending goes up > AE goes up > real GDP goes up
    interest rate effect: prices go down > interest rates go down > so investment spending goes up > AE goes up > real GDP goes up
    foreign trade effect: prices go down > export spend goes up, import spending goes down > net exports goes up > AE goes up > real GDP goes up

    The aggregate demand curve is downward sloping because as the price level drops the quantity of goods and services people are willing and able to buy increases.
    Endnotes:
    (view changes)
    7:04 am
  4. page Leakages and Injections edited ... government spending export spending If economy is steady: Y = C + I + G + (X - Im) Leakag…
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    government spending
    export spending
    If economy is steady:
    Y = C + I + G + (X - Im)
    Leakages = Injections
    S + T + Im = I + G + X
    Net export = X - Im
    REFERENCE:

    Dr. Stephanie Powers, "Circular Flow"(Lecture, Donald School of Business, Red Deer AB, Winter 2012)
    (view changes)
    1:12 am

Sunday, April 15

  1. page Aggregate Demand (Definition and Why Downward Sloping) edited ... (2): "Demand for Goods and Services in the Economy", www.pcecon.com, accessed April …
    ...
    (2): "Demand for Goods and Services in the Economy", www.pcecon.com, accessed April 11, 2012,
    http://www.pcecon.com/notes/ADASdefinitions.html.
    ...
    downward sloping. Except:
    real balance effect-effect: prices go down>down > value of saving goes up > savings goes down>so consumptionsdown > so consumption spending goes up ( its movement along the AD curve; it does not shift it)> AE goes up > real GDP goes up
    interest rate effect-effect: prices go down>interestdown > interest rates go down>down > so investment spending goes up > AE goes up > real GDP goes up
    foreign trade effect-effect: prices go down.down > export spend
    ...
    spending goes down>netdown > net exports goes up' these three causesup > AE to go up, Prices down , our economy grows.goes up > real GDP goes up
    Dr. Stephanie Powers, "Aggregate Demand", Intro to Macroeconomics.(Lecture, Donald School of Business, Red Deer Alberta, Winter 2012)
    (view changes)
    10:57 pm
  2. page Classical and Keynesian Views of Aggregate Supply edited Classical and Keynesian Views of Aggregate Supply Classical the According to classical/neo clas…
    Classical and Keynesian Views of Aggregate Supply
    Classical
    theAccording to classical/neo classical, they did not use demand and supply model. AS is vertical and = Poential GDP. In the long run, the economy will be t full employment. Therefore AS is the total of all final goods and services when all resources are utilized. According to neo-classical theory, increase in AD will only lead to inflation(prices go up). The only way to grow the economy is to increase the amount of natural resources, capital goods, technology and the quantity and quality of workers. they also said no govt intervention because it will only drive up prices. because when D goes up, prices goes up -> interest up -> D goes down.
    If wages goes up => unemployment to go up => income will go down => demand will go down.
    the
    classical has
    ...
    of labour.
    Keynesian
    ASBecause of rubber barons(monopoly) and labour unions, wages and prices were sticky (in flexible).
    AS
    is a horizontal line.line(flat line). changing demandAD will make
    ...
    grow and prices will not change. Changes have little to no impact on inflation, Aggregateprices(inflation).Aggregate demand will increases economic
    ...
    of the two.two.because as the real GDP gets bigger the supply curve gets steeper.( sometimes classical economists are right and sometimes Keynesian economist is right)
    price level
    /
    / (
    /------------------------------
    Real GDP

    Dr. Stephanie Powers, "Aggregate Supply", Intro to Macroeconomics.(Lecture, Donald School of Business, Red Deer Alberta, Winter 2012)
    (view changes)
    10:24 pm
  3. page GDP Gap and Aggregate Demand and Aggregate Supply edited GDP Gap and Aggregate Demand and Aggregate Supply Aggregate supply and potential GDP shift by the …
    GDP Gap and Aggregate Demand and Aggregate Supply
    Aggregate supply and potential GDP shift by the same amount
    ...
    the AD , P increases and AS increase but P down, the economy
    ...
    GDP= Potential GDPGDP( here is no cyclical unemployment)
    Recessionary gap
    Towhen the potential GDP > actual GDP. There is cyclical unemployment
    To
    close this
    ...
    the min wage.wage (supply siders). to increase
    ...
    the money supplysupply. Alfred MArshal is to be blmed for theses graphs. the down side is high unemployment
    Expansionary gap
    Potential GDP< Actual GDP
    to close this gap you need to decrease AS or AD. to do this you need to do the opposite of the recessionary gap.
    ...
    will lower pricesprices. the down side is inflation. How to close this gap; raise biz taxes, increase minimum wage( will decrease AS) . To decrease AD; increase interest rate, decrease money supply and lower government spending.
    what happens to potential GDP if wages fall; it stays the same. if new technology is implemented, it shifts it outward. Increas in technology, natural resources, real capital and quality and quantity of labour cause potential GDP to increase shift outward. The economy does not achieve full employment equilibrium when potential GDP shifts as a result of increase in technology, it creates a surplus and recessionary gap.

    Dr. Stephanie Powers, "Aggregate Demand", Intro to Macroeconomics.(Lecture, Donald School of Business, Red Deer Alberta, Winter 2012)
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    10:01 pm
  4. page Aggregate Supply edited ... 4.Change in technology - less capital -> AS to go down 5.Change in quality and quantity of…
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    4.Change in technology - less capital -> AS to go down
    5.Change in quality and quantity of labour - less quality and quantity of labour -> AS to go down
    No 1. cost of production shifts only the AS curve
    Note no 2 to 5 are factors that lead to economic growth and they also cause shift in the potential GDP.( increase in the last 4 will cause an increase to potential GDP0
    Potential GDP is independent of prices because it shows the amount we can produce if we use all our resources.
    (view changes)
    9:43 pm
  5. page Aggregate Supply edited ... 4.Change in technology - less capital -> AS to go down 5.Change in quality and quantity of…
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    4.Change in technology - less capital -> AS to go down
    5.Change in quality and quantity of labour - less quality and quantity of labour -> AS to go down
    Note no 2 to 5 are factors that lead to economic growth and they also cause shift in the potential GDP.( increase in the last 4 will cause an increase to potential GDP0
    Potential GDP is independent of prices because it shows the amount we can produce if we use all our resources.

    ( Morris, Alan J., and Sayre, John E. Principles of Macroeconomics: 6th Edition. United States: The McGraw-Hill Companies, 1942.)
    (view changes)
    9:42 pm

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