EC140 Lecture Notes - Lecture 6: Expenditure Function, Market Power
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EC140 Full Course Notes
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Purchase goods and services, g, - autonomous spending. Net tax revenues are taxes collected minus transfer payments. Constant net tax rate in the model: Exports are determined by foreign households and firms. Exports, x, are autonomous with respect to canadian income. Net exports are exports minus imports or: Various factors will lead to shifts in the net export function. Increase in foreign income - shift x up. Decrease in foreign income - shift x down. Increase in cdn prices (or appreciation of cdn dollar) foreign countries will buy less in. Canada: reduces exports (shift down), increases imports (rotates up) Decrease in cdn prices (or depreciation of cdn dollar) Increases exports (shift up), reduces imports (rotates down) The government decides to increase the tax rate, t, ae (desired aggregate expenditure) decreases as c decreases. Adding government and trade to the model. Ae = c + i + g + (x im) C = a + b(1 t)y.
