Chapter 8

Question 1

Aggregate demand

Answer 1

Total demand on all final goods and services produced domestically during a given period. (how much is spent on Canadian final goods and services)

Question 2

Autonomous Consumption

Answer 2

Consumption that does not depend on income. We still have to consume even if our income is 0. Doesn’t depend on ‘yd’

Question 3

Marginal propensity to consume (MPC)

Answer 3

slope of the consumption function by how much consumption changes when ‘yd’ changes by $1. What % of any extra money you get you will consume. How much you will consume if you get some extra income. 0 =< MPC =<1

Question 4

Average Propensity to consume

Answer 4

What % of the yd you have now to consume.
APC >/<1

Question 5

Positive relation

Answer 5

the two variables move in same direction

Question 6

Negative relation

Answer 6

The two variable, move in opposite direction

Question 7

Net exports, X-M

Answer 7

Trade balance

Question 8

Exchange rate

Answer 8

price of foreign currency, how many $CAD needed to buy 1 unit of a foreign currency. If exchange rate increases, instead of 2CD$ to get 1 Euro we need 5CD$ to get 1 Euro, making the Canadian goods and services cheaper as the $CAD depreciates.

Question 9

Foreign Income

Answer 9

if foreign income increases, foreigners are now rich so they will buy more of our goods and services thus increasing out net exports

Question 10

Domestic income

Answer 10

if our income increases, we are now rich, we will import more from other countries thus our net exports decrease

Question 11

Intrest rate

Answer 11

if our interest rate increases then CAD$ offers a higher return and demand on CAD$ causing the $ to appreciate. Our goods are now more expensive to foreigners and our net export decreases

Question 12

Real Interest Rate (r)

Answer 12

Causes a change in Quantity of Investment movement along the i curve. any changes in r causes a movement from one point to another on same I curve.

Question 13

Quantity of Investments Qi

Answer 13

point on the i curve

Question 14

Investment i

Answer 14

the Whole curve.

Question 15

Private Savings

Answer 15

What households save
- disposable income - consumption (y - T - c)

Question 16

Public Savings

Answer 16

What the government saves. Tax revenue - Government Spending (T - G)

Question 17

National saving

Answer 17

Total savings in the economy. Private saving (y - T - c) + Public savings (T - G)

Question 18

Quantity of saving (Qs)

Answer 18

Point of saving curve at a particular interest rate

Question 19

Saving (S)

Answer 19

Whole Curve

Question 20

Shift on I or S

Answer 20

This will affect the equilibrium interest rate and quantity of funds

Question 21

Simultaneous shift

Answer 21

both S and I shift at the same time.

Question 22

Real wealth effect

Answer 22

Price rises, real wealth purchasing power our wealth decreases so consumption decreases leading to a decrease to GDP

Question 23

Interest Rate Effect

Answer 23

demand on money increases so interest rate increases and C + I decreasing leading to a decrease in GDP

Question 24

Trade effect “Open economy effect”

Answer 24

Our goods and services are now more expensive to foreigners who will now buy less from our goods. Net exports ( X - M) decrease so GDP does aswell

Question 25

Change in Price level

Answer 25

Causes a movement from one point to another on the same AD curve ( P up = Y down)