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EC1203

Week 3

TermDefinition
Consumption Occurs when we spend money on food, clothing or going to the cinema and is directly linked to our income levels
What does income level drive? Disposable income - Money we actually spend
Yd Total Income minus total taxes
Consumption function C =f(Yd)
What is the slope of the consumption function? MPC
Marginal Propensity to consume If you got an increase in income, how much would you actually spend of that increase
When MPC is mostly used; it's closer to the number 1
When MPC is mostly not used; it's closer to the number 0
Investment Function I = I(r)
If logic is correct, spending on investment goods is A downward-sloping function of the real interest rate
Liquidity Trap Interest Rates are often near 0 or are 0
Quantiative Easing The bank can print money
What does the Government expenditure include? Exchequer spending on goods and services
In closed economy we assume? The government spending and total assets are fixed.
T>G Public Saving
T<G Public Saving is negative, so national debt increases
X-M Exports - Imports
Current Account Balance = NX
What does current account balance represent? Money
What does NX represent? Goods and services
Real Current Account Expression Current Account Bal = NX + NFIA + NUT
NFIA Net Factor Income from abroad
NUT Net Unilateral Transfers
The exchange rate between two countries represents? The price at which residents of both countries are prepared to trade with each other
When commentators refer to the exchange rate, they are normally talking about? The nominal exchange rate
Nominal Exchange Rate The relative price of the currency between two countries
The real exchange rate is also known as ? The terms of Trade
Short-Selling Sell now and buy back later, hopefully cheaper
If Recession happens, what should the government do ? Cut interest rates
Created by: peadarbailey1206
 

 



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