* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Download Chapter 9
Survey
Document related concepts
Fear of floating wikipedia , lookup
Business cycle wikipedia , lookup
Monetary policy wikipedia , lookup
Exchange rate wikipedia , lookup
Phillips curve wikipedia , lookup
Okishio's theorem wikipedia , lookup
Ragnar Nurkse's balanced growth theory wikipedia , lookup
Rostow's stages of growth wikipedia , lookup
Austrian business cycle theory wikipedia , lookup
Pensions crisis wikipedia , lookup
Early 1980s recession wikipedia , lookup
Keynesian economics wikipedia , lookup
Transcript
Chapter 9 Building the Aggregate (total) Expenditures Model Basic premise: Aggregate expenditures or total spending depend directly on the amount of goods and services produced Employment levels rise to meet output Employers will idle resources when consumption is low Consumption and Saving Savings=DI minus C Saving range-the area (shown graphically) in which saving occurs APC is a ratio of consumption to disposable income C/DI APS is a ratio of savings to disposable income S/DI APC + APS = 1 Dissaving-spending more than your DI Done by borrowing or taking $ out of savings that you have accumulated over years MPC- change in consumption change in income MPS- change in saving change in income Nominal vs. Real Interest Rates Nominal-interest rates not adjusted for inflation Real-the nominal interest rate minus the expected rate of inflation The real rate of interest is important when making investment decisions. The opportunity cost of taking money out of savings to invest in capital equipment is what you could earn if accruing interest. Investment Demand Curve The investment demand curve is an array of potential investment projects in descending order of their expected rates of return. The curve sloped downward reflecting an inverse relationship between the real interest rate (“price”) and the quantity of investment demanded. Leakage Savings leaks -a withdrawal of spending from the income-expenditure model. Saving causes consumption to be less than total output or GDP and will not clear the shelves of inventory. The excess inventory will hopefully be sold as investment replacing the saving leakage.