10-30-07 - Recession too little AD Solution Raise AD...

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Recession – too little AD Solution – Raise AD Inflation – too much AD Solution – Lower AD Keynesian Model focuses on Demand Management AD – Total spending in economy - Consumer - Private Business - Public Spending (Government) - Foreign Spending Reflects what is produced. How to change AD? AD = GDE = C + I + X – M C = f (y D ) Not just after-tax-income! Business spending – make/create capital Plants Equipment Inventory Decision to Invest – Best thing? Spend $20…Get back $30 50% Return MPC = Δ     C    Δy D In order to evaluate spending, look at opportunity cost. Opportunity cost of spending   saving Biggest opportunity cost   Interest Rate Current Interest Rate   5% … Not guaranteed, just expected If expected rate of return is greater then interest rate  Invest If interest rates increase, $ spent on plant, equip, inventory decreases.
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Investment   real spending on plant, equipment, or inventory
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This note was uploaded on 04/18/2008 for the course ECON 202 taught by Professor Woroby during the Spring '08 term at Towson.

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10-30-07 - Recession too little AD Solution Raise AD...

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