Econ 310 W2008 Class19

Econ 310 W2008 Class19 - Money and Banking Econ 310...

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Click to edit Master subtitle style Money and Banking Econ 310
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22 Announcements n Reading: n n Assignment n Assignment due Friday, 5pm n Second Exam n During class time, March 27
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33 National Accounting Identities n National Income: How is it earned? n All spending becomes a payment to somebody n Y = C + I + G n i.e. National income equals the sum of all spending n National Income:  How is it spent? n All income is allocated to some use n Y = C + S + T n S = Savings n T = Taxation n C= consumption
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44 National Accounting Identities n Y = C + I + G n Y = C + S + T  n C + I + G = C + S + T n S – I = G – T n i.e. net private savings = fiscal deficit n i.e. fiscal deficit is financed out of private savings
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55 Goods Market Equilibrium Y C, Yad a Y= Y C(Y) = a + mpc * Y Y* Yad(Y) = C(Y) + I I + a Yad = Y* 45°
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66 Disequilibrium Y C,  Yad a Y = Y C(Y) Y* Yad(Y) = C(Y) + I Reduced  inventory Yad(Y’) Y’ Y’ C(Y’) Net  Investment I = planned investment
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77 A Closer Look at Investment n Is Investment really exogenous? n Planned investment is sensitive to the real interest  rate n The real interest rate reflects the real cost of  financing projects n When the real cost of capital is high, fewer projects  will be undertaken n Investment decreases with higher interest rates
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Econ 310 W2008 Class19 - Money and Banking Econ 310...

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