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1. What are the views of each on government intervention? 2. Does the economy self-correct, with no government intervention? 3. What do the Monetarists believe and why are they called Monetarists when they don’t believe in Monetary policy? 4. Who were some of the Classical economists? 5. What is the unique story of Jeremy Bentham? 6. Do the Classicals or Keynesians have a just “Do Nothing” strategy on fiscal and monetary policy? 7. What are the disagreements on flexible prices & wages? 8. KFC Quiz If a Keynesian statement, put “K” If a Classical statement, put “C”, & If you don’t know, put “KFC” 1776-1930s 1930s-1970s Classicals–1776 – 1930s No G intervention in economy -20% Founder: Adam Smith Bible: Wealth of Nations $10 $8 Macro Policy: “Do Nothing” Motto: “Supply creates demand” “The economy will self-correct in LR.” LRAS AD1 SRAS1 AD2 SRAS2 Smith YR YR Y* YI Keynesians – 1930-1970s; 1992-2000 G intervention in the economy (Fiscal Pol: G&T) Founder: John Maynard Keynes Bible: The General Theory Macro Stabilization Policy: G&T & watch M work Motto: “Demand Creates Supply.” Keynes “Ultimately, in the long run we are all dead.” AE = C + Ig + G + Xn 1776 Adam Smith 1723-1790 Classical v. Keynesian 1936 John Maynard Keynes 1883-1946 [died 4-21-46] Price Level AD1 AS PL1 Adam Smith YF RDO [“Cheaper Excess Supply Creates Its Own Demand”] With lower PL, the real-balance, AD2 AD1 interest rate, & foreign purchase effects kick in and the surplus disappears and FE is regained. PL1 AS Surplus PL2 The government doesn’t need to do anything, or “Nobody touch nothing.” YF RGDP “Don’t worry, be happy. Everything will work itself out in the long run.” Markets in Classical Theory The next four slides will demonstrate how flexible interest rates, flexible product prices, and flexible wages will cause the economy to equilibrate from recession back to FE. (a) Loanable Funds market (dollars) Real Interest Rate, (percent) Markets in Classical Theory DBorrowers R=8% S1 S2 Lenders Increase in savings R=5% F1 “More investment; more jobs” F2 All right, I get to keep my job. Quantity of LF Classical View In Other words, a “leakage” becomes… An injection. Markets in Classical Theory (b) Product Market [Fish] D1 D2 Consumers -20% S Producers “flexible prices” Decrease in demand for fish QD1 “Lower prices; more consumption” QD2 Markets in Classical Theory Resource Market [Labor] Recession causes a decrease in demand for workers, so there is a surplus of workers. D2 $10 $8 D1 Employers S1 Workers S2 “flexible wages” Prices have dropped 20% so workers will accept $8 because they have the same purchasing power and they still have a job. Hire more workers YR “Lower Wages; hire more” Y* Markets in Classical Theory (d) Self regulating economy LRAS PL AD1 AD2 “Flexible -20% prices” SRAS2 Keynes argued the classical model might explain the $10 “Flexible SRAS1 economy’s operation in the long run but it might take years. wages” $8 YR YR Y* RGDP Now, with flexible interest rates, flexible product prices, & flexible wages, let’s see how the economy self-corrects after a recession. [Nothing “sticky” here] Markets in Classical Theory And that is the way Classicals viewed the economy. SRAS2 LRAS SRAS1 AD2 Price Level PL3[108] AD E3 PL2[106] PL1[103] E2 E1 Inflation Gap 0 Y1 Y2 Real domestic output Friedman Monetarists – 1960 – present No G intervention in the economy. Founder: Milton Friedman Bible: Wealth of Nations Macro Stabilization Policy: Monetary Rule Motto: “Increase the MS 3-5% year” MXV=PXQ Quantity theory of Money Equation of Exchange The G prevents downward wage flexibility with the minimum wage, pro-union legislation, pro-business monopoly legislation, and subsidies to farmers. Their macro stabilization policy is: “Don’t do something. Just Sit there.” Monetary Rule Motto: “Increase the MS 3-5% year” MXV=PXQ Friedman Quantity theory of Money Equation of Exchange Unemployment: the result of a short-lived adjustment period. Prices and wages decrease to restore full employment. Adam Smith [1723-1790] Even if prices fall, wages may not fall so the government will have to create AD. Keynesian Theory Unemployment: the result of long-term inadequate AD. Inflexible [sticky] prices & wages result in persistent unemployment. John M. Keynes (1883-1946) The General Theory of Employment, Interest, and Money John Maynard Keynes (1936) Keynes argues that no self-correcting mechanism exists for restoring fullKeynes employment. If there is, then where is it in this “Great Depression”? So – the Classical School was Keynes’ “whipping boy”. Take that, Classicals!!! The “Great Depression” cried out for a solution and this began the “rallying cry” for the beginning of massive government intervention. Full- employment assumptions I shall argue that the postulates of the classical theory are recession applicable to a special case only and not to the general case . . . prolonged with the result that its teaching is recession misleading and disastrous if we attempt to apply it to the facts of The Great Depression experience. (1936) Keynesian Theory Assumptions: • Businesses may resist lower prices. • Unions & workers may resist lower wages. Suppose there is a recession . . . Keynes: The economy is driven by AD. P1 B A AS GDP 1929 - 1933 (billions of dollars) 1929 $103.1 bil. 1930 90.4 bil. 1931 75.8 bil. 1932 68.0 bil. 1933 56.0 bil. Y2 YF 1 AD2 AD1 Government will have to ride to the rescue. 1929 to 1934 Consumption 20% Investment 87% Exports 67% Real GDP 30% Recall: AD = C + Ig+ G + (X-M) Only thing left A B AS AD2 Y2 YF1 AD1 Recall: AD = C + I + G + (X-M) PL Keynes: B Y2 A AS AD2 YYF3F1 Use government spending to stimulate AD to increase GDP. AD13 Also, invented S & D method for analyzing markets. Differentiated between shifts of D and S curves and movements along D and S curves. [D/QD and S/QS] By doing so, he cleared up 2,000 years of faulty reasoning. When Ricardo, who was Jewish, married a Quaker, his father said, “You are not our son”, but when he accumulated $25 million, his father said, “___ ___ ___ ___.” Jean Say John S. Mill Alfred Marshall David Ricardo Thomas Malthus Adam Smith Keynes and Lydia Classicals Doomsday prediction [“Population will outpace food supply.”] The Classical School includes Adam Smith, Jean Baptiste Say, Jeremy Bentham, David Ricardo, Alfred Marshall, Thomas Malthus, and John Stuart Mill. AD AS Summary of Major Classical Ideas 1. The economy is always close to or on its PPF. PL 2. There is no involuntary unemployment, meaning that anyone who wishes to work can work at the going wage. The economy is always close to or at full-employment. YF 3. What output is produced will be demanded. Since the output of an economy is the full-employment output, this implies that there will be enough spending to purchase the full-employment. 4. Overall, the Classical economists believed that the market economy is a self-adjusting mechanism that stabilizes itself at FE output. This position rested on a foundation composed of: A. Say’s Law, [“the supply (sale) of X creates the demand (purchase) of Y”] B. Interest Rate Flexibility. “The leakage down the drain of saving is returned through the spigot of investment.”] C. Price Flexibility. [Cheaper prices = more AQD] D. Wage Flexibility. [Lower wages = more workers being hired] E. Quantity Theory of Money. X V = X Q Classical – AS determines output 1.“Supply Creates Demand” [Say’s Law] [Whatever output is produced will be demanded. There will be enough spending to purchase the output. The AD curve is relatively stable [if money supply is constant ] AS AD Keynesian – AD determines output. 1.“Demand Creates Supply”[Keynes’s Law] “S” doesn’t create “D”. [Supply was there during the depression]. The “G” might need to create some demand. The AD curve is unstable. [because of the volatility of investment ] PL AD AS Ig dropped 87% from 1929-1933. AD PL YF * YD 1933(25%) Y1929 (3%) Keynesians Classicals 2. Savings(leakage)=investment(injection) This is so because of “interest rate flexibility.” The interest rate is the cost of borrowing. The interest rate alone determines the level of investment. “A leakage down the drain o of saving is returned through the spigot of investment.” Investment depends on profit expectations, tech. changes, innovation, and interest rates. 2. Savers and investors are two completely different groups who save & invest for different reasons. Saving is more related to income than the interest rate. Investment is more responsive to business expectations, technological chgs, & innovations than to changes in the interest rate. [Gr. Depression] “We save for down payments for cars and houses, retirement, college, illness, and a rainy day fund.” S Saving C C 45 Y1 Y2 Y3 Classicals Keynesians 3. Savings increase with the interest rate. Savers save more at higher interest rates. So, this is a direct relationship. 3. Savings are inverse to the interest rate. You don’t have to save as much at higher interest rates to get the same amount of money. Repeat quote from previous slide: “A leakage down the drain of A retirement goal of $100,000 saving is returned through the by the time you are 65 will require less money at 12% spigot of investment.” than at 6%. So again, savings [& consumption] are a function of income, not the interest rate. “more consumption and more saving” More investment Classicals say “Cheaper Excess Supply Creates It’s Own Demand” Classicals PL LRAS AD1 4. Prices & wages are flexible downward. By lowering prices, AD2 businesses may lower profits, but with flexible wages – they -20% don’t have to pay the workers $10 as much so profits are the same. $8 All factor prices [not just wages] will adjust downward and all factors would be fully employed. *Price/wage flexibility is the central difference. YR YR Y* SRAS1 SRAS2 Keynesians 4. Prices/wages are inflexible downward. [“Sticky”] The economy is not flexible enough to allow wageprice flexibility. Monopolistic elements prevent prices from falling quickly. Labor unions prevent wages from falling quickly. “Full Employment” AD2 “Recession” PL2 SRAS 3 AD1 “Sticky” “The economy has fallen and can’t get up.” PL1 RDO2 RDO1 RDOFE Real Domestic Output Because prices are “sticky down”, the resulting downturn is worse because prices are higher which decreases output further.” Classicals 5. AS=AD at FE equilibrium. There is no involuntary unemployment. The economy will naturally equilibrate to FE. If you are unemployed, you can always work at a lower wage but prices have dropped. Abnormal circumstances, like wars or droughts, could prevent full employment temporarily. Adjustments within the market system should restore the economy to full-employment. “In the long run, the economy will correct.” Keynesians 5. There is no mechanism capable of guaranteeing full employment. The classical argument that wage and price flexibility will ensure full employment is thus flawed by the fallacy of composition. One market, like autos, might adjust, but markets in the rest of the economy may not adjust at the same time. “In the long run, we are all dead.” 6. The economy is always 6. The economy is not always close to or at full-employment. close to or at full-employment. The economy is self-regulating, one that can “heal itself” if it Will work gets sick. for Food 7. There is a very definite management role for the “G”. It is called fiscal policy, or 7. The government does not have an economic management government spending and taxes to stimulate the economy. role to play in the economy. Price Level AD1 AS PL1 Adam Smith YF RDO [“Cheaper Excess Supply Creates Its Own Demand”] With lower PL, the real-balance, AD2 AD1 interest rate, & foreign purchase effects kick in and the surplus disappears and FE is regained. PL1 AS Surplus PL2 The government doesn’t need to do anything, or “Nobody touch nothing.” YF RDO “The economy has fallen and can’t get up.” LRAS AD1 SRAS AD2 PL1 But prices may not fall because businesses don’t want them to fall. YR Y1 RDO “The economy has fallen and can’t get up.” Even if prices drop… LRAS SRAS Wages may not fall [workers don’t want this] so G intervention is needed. Prices may not be flexible down. Even if they were, wages may not drop so easily either. PL1 AD3 AD2 “G” PL2 YR Y1 RGDP • There are three views concerning the shape of the aggregate supply curve. • 1. New classical View • 2. Keynesian View • 3. Mainstream View 1. New Classical Version of AS Price level AS O RGDP 2. The Keynesian View PRICE LEVEL (average price per unit of output) AS is horizontal up to full-employment At this point (FE), AS becomes vertical AS P1 AD2 AD1 Y1 Y* Real GDP AD3 3. The Consensus or Mainstream View • At low rates of unemployment AS is horizontal; at high rates of unemployment AS is nearly vertical. • In between, AS is gently upward sloping. AS • The closer to capacity , the greater the risk that fiscal or monetary stimulus will spill over into price inflation. PRICE LEVEL (average price per unit of output) The Consensus or Mainstream View AS AD2 AD1 Inflation PL2 PL1 accelerating Keynesian segment Unemployment declining Y1 Y2 Real GDP Effect of an increase in AD: different versions of the SRAS curve New Classical Version of AS Price level AS 0 RGDP New Classical Version of AS AS Price level AD1 PL O Y RGDP New Classical Version of AS Price level AD1 AD2 AS PL2 P1 O Y RGDP Aggregate Demand and Supply The Extreme Keynesian Approach Extreme Keynesian Version of AS Curve Price level AS PL 0 RGDP YF Extreme Keynesian Version of AS AS Price level AD1 PL 0 Y1 YF RGDP Extreme Keynesian Version of AS AS AD2 Price level AD1 PL O Y1 Y2 YF RGDP Extreme Keynesian version of AS AS AD3 AD2 Price level AD1 PL O Y1 Y2 YF RGDP Extreme Keynesian Version of AS AD2 AD3 AD4 AS Price level AD1 PL4 PL1 0 Y1 Y2 YF RGDP A Typical Short-run AS Curve A Typical Short-Run AS Curve Price level SRAS 0 RGDP A Typical Short-Run Mainstream AS Curve “Modified Keynesian” AD1 Price level SRAS PL1 0 Y1 RGDP A Typical Short-run Mainstream AS Curve AD2 AD1 SRAS PL2 PL1 0 Y1 Y2 RGDP A Typical Short-Run Mainstream AS Curve AD1 AD2 AD3 SRAS PL3 PL2 PL1 0 Y1 Y2 Y3 RGDP A Typical Short-run Mainstream AS Curve AD1 AD2 AD3 AD4 SRAS PL4 PL3 PL2 PL1 0 Y1 Y2 Y3 Y4 RGDP The “Wealth of Nations” was their Bible. Reigned supreme until Gr. Depression. 1. Say’s Law: Supply Creates Demand (centerpiece). People’s supply of goods they produce will buy what they need. In a money economy, interest rate flexibility insures that Say’s Law still holds. Although people may save more, lower interest rates mean business will invest more. 2. Saving = Investment. “A leakage down the drain of saving would be returned to the tub through the spigot of investment.” The interest rate connected the drainpipe and the spigot. 3. Price-wage flexibility - Competition ensures price flexibility. With falling prices, workers would accept lower wages and more would be hired. Keynes focused much of his attack on the price-wage flexibility theory. 4. Involuntary unemployment was impossible. Although wages would drop, prices had also, so your purchasing power would be about the same. OK, I’ll take this lower paying job because with lower prices I can buy the same things. “A Recession, no problem, just - - - “Do Nothing.” No “G” Adam Smith The Great Depression was a “collision of theory and fact.” Classical economists kept saying, “In the long run, it will work itself out.” Keynes replied, “In the long run, we are all dead.” “General Theory” was their Bible. 1. The economy seldom has full employment. Saving and investment decisions may cause recessions. Using G & T, Keynes came up with Keynes’s Law, “Demand Creates Its Own Supply.” 2. Prices and wages tend to be inflexible downward. 3. More saving does not equal more investment. The interest rate does not connect the saving drain to the investment spigot. Savers and investors save and invest for different reasons. Lower Interest Rates Mean You Need More Money. Investment needed to provide $1,000 lifetime monthly income. Interest Rate Male 65 Female 65 [women live longer] 8% 5% $103,750 $118,110 $128,220 $150,760 “The Classical Show was over as there were no self-correcting mechanisms.” Keynesian G & T Revolution “I’m going to shoot Classical theory down.” Keynes The Classical show is over. I’m a Classical. AD2 LRAS AD1 SRAS1 SRAS2 YR Y* 1. If AD remains constant, the equilibrium price levels in the OA OB short run and in the long run will be _____ & _____? 2. If the government uses fiscal policy to get out of the OC recession, price level will end up at _____? “Chg in AQD” “Chg in AD” 1. Price level changes cause (shifts of the AD or AS curve/movements from one point to another on a stable AD or AS curve[changes in AQD or AQS]. 2. What 3 effects cause an increase or decrease in AQD? Foreign purchase Interest Rate Real-balance ___________________, _____________, & ________________ effects. change in price level 3. What will not shift the AD or AS curves? ________________ 4. How does a decrease in price level affect the: real value of wealth? (increase/decrease); consumption? (incr/decr); & increases/decreases) (AD/AQD). 5. What does an increase in price level do to the demand for money? (increase/decrease); affect interest rates? (incr/decr); affect consumption? (incr/decr); & incr/decr) (AD/AQD). 6. A decreasing U.S. price level (incr/decr) U.S. exports and (increases/decreases) (AD/AQD). 7. An increase in the national incomes of our trading partners (incr/decr) our net exports which will lead to an (incr/decr)in (AD/AQD). 8. An appreciation of the dollar will (incr/decr) AS but (incr/decr) AD. A depreciation of the dollar will (incr/decr) AS but (incr/decr) AD. 9. If the interest rate decreases because price level decreases we will have an (increase/decrease) in (AD/AQD). 10. If the interest rate decreases but price level remains constant we will have an (increase/decrease) in (AD/AQD). 11. If the PPC shifts out (more resources or technology), then the (AD/AS) curve shifts (right/left). 12. Productivity (is/is not) affected when resource cost decreases. 13. What economic event brought the curtain down on the classical The Great Depression show?_______________________________________ What economic event brought the curtain down on the Keynesian Stagflation show? _______________________________________ Joseph Say 14. Who said “Suply creates demand?” ________________ 15. During a depression, the policy of the (Classicals/Keynesians) is “Do nothing.” 16. The (Classicals/Keynesians) believe government should take an active role. 17. The (Classicals/Keynesians) said, “Savers save more at higher interest rates.” REP C+Ig+G+Xn PL2 E2 E2 Y2 Test Review on AD/AS and Classical V. Keynesians Caused by a “Change in PL” Macro Law of Supply [DIRECT ] Macro Law of Demand [Inverse] AD AS PL1 PL1 PL2 PL2 AQD1 AQD2 AQS2 AQS1 Macro Law of Demand [cause] [effect] PL decr; AQD incr. PL incr; AQD decr. “AD” refers to whole curve. “AQD” is a pt on the curve based on a particular PL. AD Reasons For Downsloping “AD” Curve [if PL decreases, this happens] 1. Interest Rate Effect – more Ig 2. Real Wealth Effect – more “C” 3. Foreign Purchase Effect - foreigners buy more PL1 Change in AQD PL AQD 1. Price Level change 2. Movement [up or down the AD curve 3. Pt to pt [along the AD curve] PL2 Inverse relationship 2 AQD 1 AQDcurve”. “AD” refers to the “whole [“all PLs”] “AQD” refers to a “point on the curve” based on a “particular price level.” “Change in AD” C Consumption Christina A.’s Concert 1. “Non price Level” change-either C, Ig, G, or Xn 2. “Whole AD curve” shifts [There is a change in AQD but it is not caused by a change in price level.] Ig AD1 AD2 AD3 G PL Let there be spend- ing on infrastructure XN Chevy oil [Exports-Imports] AQD2 AQD1 AQD2 RDO Change in AS 1. “Non price level change”. Either R,Anything E, or P that lowers 2. “Whole AS curve” shifts. the cost of production 3. AQS changes but is not caused bywill a change PLright. shift in AS AS Shifters(REP) 1. Resource cost 2. Environment [legal-institutional environment for businesses change, Increase in the affecting availability of Resources production costs. [subsidies, bus. taxes, regulations] 3. Productivity PL 1. Lower business taxes 2. Decrease in regulations 3. AS3 AS1 AS2 So – AS Shifters are REP You save money. We don’t require dental or medical insurance. You don’t have to pay us a pension and we don’t take sick days. And – we can dance. Increase in subsidies Environment [Legal-institutional] AQS3 AQS1 AQS2 Increase in Productivity Productivity changes (measure of average output) How many outputs can be obtained from a certain amount of inputs. Productivity [4] = real output (20 units) Inputs (5 units) An increase in productivity means more real output can be obtained from the same inputs. Does productivity alter per unit production cost? (If output is 20 units, input quantity is 5 units, and price of each input is $2) Total input cost($10)[$2x5] Per unit production cost [.50] = Units of output (20) Suppose output doubles to 40 units, input quantity is 5 units, & price of each unit is $2. Per unit production cost [.25] = Total input cost($10) Units of output (40) AS - amount of real output firms will produce at each PL. Higher price levels provide an incentive to produce more. AS has three ranges: Price level 1. Horizontal (Keynesian) 2. Intermediate 3. Vertical (Classical) Horizontal Vertical [Classical] Range [Keynesian] Range Upsloping or Intermediate Range RGDP PL AS AS6 Price level PL6 PL5 PL4 PL3 PL1 AD5 Vertical [Classical] Range Pure AD4 Inflation AD2 AD3 AD1 Horizontal Y1 Upsloping or Intermediate Range Y2 Y3 Y4Y5 RGDP Decreasing Supply That Causes A Recession Price Level AS AS 2 1 AD P2 P1 Stagflation Y2 Y1 RGDP Increase in AD [caused by “C+Ig+G+Xn”] Increase in AD AD2 LRAS Price Level 1. Increase in Consumption a. aggregate wealth increases AD1 b. expected increase in inflation c. low consumer debt d. decrease in consumer taxes e. decrease in interest rates f. positive future income 2. Increase in Investment a. decrease in interest rates b. positive profit expectations c. inventories are low d. *business taxes are reduced 3. Increase in Government spending a. on the military b. on the infrastructure c. on health care 4. Increase in Net exports [Xn] A. Dollar depreciates B. Trade partners incomes rise YR YF Real Domestic Output, GDP SRAS Increase in AS [caused by “REP”] Increase in AS [“REP”] Resource Cost [domestic] a. More land, labor, capital & entrepreneurs b. # of sellers increase c. Hiring fewer union workers PL Resource Cost [overseas] c. Imported input prices decrease d. Dollar appreciates Environment [legal-institutional] a. Increase in subsidies b. Decrease in bus. regulations c. *Decrease in business taxes Productivity Increase in productivity AD AS1 AS2 RGDP Points of Emphasis for AD/AS Questions 1. Wages (labor), this is resource cost, so AS shifter. 2. Increase/decrease in union workers hired – they get paid more – so labor, so AS shifter. 3. Appreciation/depreciation of a currency [either AD or AS] a. Resource cost is part of REP, so it is AS shifter. b. Exports are part of C+Ig+G+Xn, so it is AD shifter. 4. Regulations and subsidies [legal-institutional Environment], part of REP, so they are AS shifters. 5. For all C+Ig+G+Xn, does the situation result in an increase or decrease in AD & therefore GDP? 6. For REP, think of production costs – if producers make more money, there is an increase in AS, if producers make less money – there is a decrease in AS. “Chg in AQD” “Chg in AD” 1. Price level changes cause (shifts of the AD or AS curve/movements from one point to another on a stable AD or AS curve[changes in AQD or AQS]. 2. What 3 effects cause an increase or decrease in AQD? Foreign purchase Interest Rate Real-balance ___________________, _____________, & ________________ effects. change in price level 3. What will not shift the AD or AS curves? ________________ 4. How does a decrease in price level affect the: real value of wealth? (increase/decrease); consumption? (incr/decr); & increases/decreases) (AD/AQD). 5. What does an increase in price level do to the demand for money? (increase/decrease); affect interest rates? (incr/decr); affect consumption? (incr/decr); & incr/decr) (AD/AQD). 6. A decreasing U.S. price level (incr/decr) U.S. exports and (increases/decreases) (AD/AQD). 7. An increase in the national incomes of our trading partners (incr/decr) our net exports which will lead to an (incr/decr)in (AD/AQD). 8. An appreciation of the dollar will (incr/decr) AS but (incr/decr) AD. A depreciation of the dollar will (incr/decr) AS but (incr/decr) AD. 9. If the interest rate decreases because price level decreases we will have an (increase/decrease) in (AD/AQD). 10. If the interest rate decreases but price level remains constant we will have an (increase/decrease) in (AD/AQD). 11. If the PPC shifts out (more resources or technology), then the (AD/AS) curve shifts (right/left). 12. Productivity (is/is not) affected when resource cost decreases. 13. What economic event brought the curtain down on the classical The Great Depression show?_______________________________________ What economic event brought the curtain down on the Keynesian Stagflation show? _______________________________________ Joseph Say 14. Who said “Suply creates demand?” ________________ 15. During a depression, the policy of the (Classicals/Keynesians) is “Do nothing.” 16. The (Classicals/Keynesians) believe government should take an active role. 17. The (Classicals/Keynesians) said, “Savers save more at higher interest rates.” REP C+Ig+G+Xn PL2 E2 E2 Y2 My teacher says “Economics is just common sense.” I say, “Economics is common sense made difficult.” The End