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Transcript
Chapter 9: Introduction to Keynesian Thought 9-50 Investment Changes Investment demand curve Changes in i-rates move you along the investment demand curve. Interest rates fall, Investment increases. Investment demand curve Changes in i-rates move you along the investment demand curve. Chapter 9: Introduction to Keynesian Thought 9-50 Investment Changes Graphically Interest rates changes – Movements along the investment demand curve. Expected Rate of Return changes – Shifts of the curve. Investment demand curve Changes in expected rate of return shift the investment demand curve. Increase Decrease Expected Rate of Return is effected by: Costs of buying, operating, and maintaining equipment. Technological change. Stock of capital goods on hand (capacity utilization rates) Expectations about future sales and/or profitability. Business taxes. Chapter 9: Introduction to Keynesian Thought 9-50 Investment Changes Fed lowers i-rates to up I But expectations are falling Chapter 9: Introduction to Keynesian Thought 9-50 Investment Changes Keynesian Theory Control the economy by controlling aggregate spending. GDP = C + Ig + G + Xn Ig is effected by the interest rates and…. Non-interest determinants of I Costs of buying, operating, and maintaining equipment. Technological change. Stock of capital goods on hand (capacity utilization rates) Expectations about future sales and/or profitability. Business taxes.