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P. 31. Modelling the economy, p. 439.

1.    Government spending (G)

a.    current spending on goods and services
b.    investment spending
c.    transfer payments (pensions, unemployment, payment for nothing) not an injection.

Equal changes in both spending and tax will not have the same effect.

2.    Taxes(T)

Marginal rate of taxation (MRT)

Equilibrium in the closed economy I+G=S+T

3.    Exports (X)

4.    Imports (M) determined by the level of Y

Marginal propensity to import (MPM)


1.     Increase in G or I - balance of payments worsens.
2.     Increase in X - balance of payments improves.
3.     Feedback effects occur when nations trade can influence world trade.


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