ECON 102 Lecture Notes - Lecture 5: Fiscal Policy, Autarky, Potential Output

• School: UBC
• Department: Economics
• Course: ECON 102
• Professor: Robert Gateman

Document Summary

Econ 102 lecture 5 national income part ii con"t: equilibrium national income, ae function i. ii. Definition: ar = e = c + i + g + nx. 2: g = g, nx = f(y) iii. Equilibrium condition: if y = e, the ye: equilibrium income in closed economy i. ii. Decision makers: household (h), firm (f), gov"t (g) General premises: h savse some income at bank; bank loans some savings to f for investments; g taxes and spends: equilibrium income in open economy i. ii. Decision makers: household (h), firm (f), gov"t (g), world (nx) General premise: as above plus world - domestic buys m, foreign country buys x: changes in national income, the simple multiplier i. ii. iii. iv. v. Simple multiplier = k = 1/(1-z), z = mpspend. In the open economy, z = b(1-t) - m. Taxes and imports reduce the value of the multiplier.