1. AGEC 430 Macroeconomics of Agriculture Spring 2010
Slide Show #11
AGEC 430
Macroeconomics of Agriculture
Spring 2010

2. Handout #20

3. MD MS ie QM

4. MD MS ie QM

5. MD MS ie QM

6. MD MS
Then solve for i ie QM

7. AD AS Pe
Substitute the definitions for C, I and G into equation (8) and solve for Y Ye

8. Substitute the definitions for C, I and G into equation (8) and solve for Y gives the following equation.

9. Solving equations (4) and
(10) As a system of simultaneous gives us the values of iE and YE shown in the graph here.

10. Again… the AD curve reflects
C + I + G in a closed economy.

11. Since we know Y, we can solve for LD for a given wage rate.
GDP = C + I + G + X – M

14. If we know the value of these multipliers, then we do not need to solve the entire model.

17. Handout #21

18. Product Market Equilibrium
Closed economy:
GDP = C + I + G + X – M
Excludes trade
Open economy:
GDP = C + I + G + X – M
Includes trade

19. 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)

20. 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.

21. The variables circled in red reflect the effects of international trade.

22. The aggregate demand curve now includes net exports (XN)

24. Again, if we know the value of these multipliers, then we do not need to solve the entire model.