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Macroeconomics
Semester 1
Lesson 8
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Created by
Matezik Sebestak
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Cards (23)
What percentage of GDP did net exports account for in the UK in
2013
?
25%
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How do exports depend on foreign income?
Exports
increase
with
higher
foreign income
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What happens to exports when home prices rise relative to foreign prices?
Demand
for exports falls
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What are imports?
Goods and services
purchased from abroad
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How do imports relate to domestic income?
Imports
rise
with higher domestic income
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What is the formula for imports?
IM =
m0
+
mY
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What does 'm' represent in the imports formula?
The
marginal propensity to import
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How is net exports (NX) calculated?
NX = X -
m0
-
mY
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What does x0 represent in the net exports formula?
x0 captures
autonomous factors
like
price competitiveness
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What effect does a rise in foreign GDP have on net exports?
It causes net exports to shift
upwards
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What happens to net exports when domestic prices rise relative to foreign prices?
Net exports shift
downwards
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How does a depreciation of the exchange rate affect net exports?
It makes
imports
more expensive and exports cheaper
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What is the full model of equilibrium GDP?
AE
=
Y
= C + I + G + NX
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What does the full open economy multiplier with government represent?
ko
= 1/[1 -
b
(1 - t) + m]
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Why is the full open economy multiplier smaller than previous multipliers?
Because m
>
0
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What does the identity S + T + IM = I + G + X represent?
Equality
between
injections
and
withdrawals
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What does (T - G) represent in the rearranged identity?
The
budget surplus
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How does fiscal policy affect the effectiveness of economic policy in an open economy?
Higher
income leads to higher
imports
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What is a constraint on expansionary fiscal policies?
The size of the
trade balance deficit
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What does the Tinbergen principle state?
Two objectives require two
independent
instruments
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What happens to equilibrium GDP with changes in exogenous elements?
Equilibrium GDP changes by a
multiple
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What factors influence the size of the multiplier?
Sizes of
b
, t, and m
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Why have prices been held constant in the model?
Because a
supply-side
has not been developed
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