Class Notes - 10-12-07

Class Notes - 10-12-07 - Macroeconomics Class Notes...

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Macroeconomics – Class Notes – 10/12/07 POLICY #3: BUDGET DEFICIT Budget deficit reduces supply of loanable funds “Crowds out” investment o Higher interest rates will percolate throughout credit system If interest rates jump, an investment project that will bring in lower returns, will inhibit some new investment projects Private investment declines if there is a government deficit REMEMBER, THERE IS PRIVATE AND PUBLIC INVESTMENT o If there is a bad budget deficit, this is will decrease the supply of funds (supply curve gets shifted to the left: example: from 5% to 6% interest and from $1,200 to $1,000 loanable funds) CONCLUSION Financial markets boost efficiently Price of funds = interest rate END OF CHAPTER 13
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START: TOOLS OF FINANCE FUTURE VALUE Future Value : Amount that a sum today will reach in the future. (Assume interest rate [r] = 5% = .05) (1+r) * $100 = ($105) … after 1 year (1+r) * (1+r) * ($100) = ($110.25) (1+r) * (1+r) * (1+r) = $115.76 …after
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Class Notes - 10-12-07 - Macroeconomics Class Notes...

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