Transcript Handout #10

Slide Show #11
AGEC 430
Macroeconomics of Agriculture
Spring 2010
Handout #20
MD
MS
ie
QM
MD
MS
ie
QM
MD
MS
ie
QM
MD
MS
Then solve for i
ie
QM
AD
AS
Pe
Substitute the definitions for C, I and
G into equation (8) and solve for Y
Ye
Substitute the definitions for C, I and
G into equation (8) and solve for Y
gives the following equation.
Solving equations (4) and
(10) As a system of
simultaneous gives us the
values of iE and YE shown
in the graph here.
Again… the AD curve reflects
C + I + G in a closed economy.
Since we know Y, we can
solve for LD for a given
wage rate.
GDP = C + I + G + X – M
If we know the value of these multipliers, then we do not need to solve the
entire model.
Handout #21
Product Market Equilibrium
Closed economy:
GDP = C + I + G + X – M
Excludes trade
Open economy:
GDP = C + I + G + X – M
Includes trade
An increase in domestic interest
rates relative to interest rates in the
rest of the world increases the value
of the dollar. (see Handout 11)
An increase in domestic
income increases imports.
A stronger dollar reduces
exports. (see Handout 11)
The last term reflects the
effect of domestic interest
rates.
The variables circled in red reflect
the effects of international trade.
The aggregate demand curve
now includes net exports (XN)
Again, if we know the value of these multipliers, then we do not need to
solve the entire model.