AS, AD, GPD

• GDP = C (consumption) + I (investment) + G (government purchases) + (Exports - Imports)
• Aggregate damand has the same components of GPD; thus AD = C + I + G + X - M.
• AD up, Y up, MD up.

Fiscal

• Spending multiplier: d(expenditure) * spending multiplier = d(real gdp)
• Government spending multiplier
• Tax multiplier = -MPC/MPS.
• Balanced budget multiplier (used when G and T simultaneously increase or decrease by the same amount) = 1.
• Expansionary: G up or T down => AD up => Y up => MD up => r up => I down => Y down.
• r up => increased demand for the domestic currency for investment purposes => appreciation of the domestic currency => export down, import up => net exports down, partially offsetting the initial expand.
• final effect: r up, Y up, I down.
• expansionary fiscal policies will move the economy towards deficit (since G up or T down).

Monetary

• Deficit = G - T
• Money Multiplier: total deposit = new deposit * money multiplier.
• = 1/(required reserve ratio)
• Expansionary: MS up => r down => I up => AD up => Y up => MD up => r up
• Final effect: r down, Y up, I up.
• Three ways to expand:
1. decrease the required reserve ratio
2. decrease the discount rate for banks
3. buy bonds (securities)

Monetary + Fiscal

• Two expansionary policies, for example, can be used together: fiscal(r up, I down) + monetary(r down, I up).

Formulae and Measures

• CPI = Total Cost of market basket this year / Total Cost of market basket last year
• If CPI down, that means the currency appreciates (use less amount of currency to purchase the same basket)

Created Date: May 01, 2011 16:43:05
Last Modified: May 10, 2011 21:07:50