ch4notes - Goods Market Equilibrium (Closed Economy) Output...

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Goods Market Equilibrium (Closed Economy) Output Supply: Y N Market Labor A etc. Knowledge, K Investment Past Output Demand: G I C d d + + G : Spending Government I : Investment C : n Consumptio d d
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Supply = Demand L.F. for Demand L.F. of Supply Investment Desired Savings Desired I S I G C Y G I C Y d d d d d d = = = = - - + + = Equilibrating Factor: Real Interest Rate Savings Incentive: Real Interest Rate Real Interest Rate d S Investment Incentive: Real Interest Rate Real Interest Rate d I
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Real Interest Rate r d S d I I , S I S = Full Characterization of Equilibrium G - I - Y C Decision Government : G I S : I Function Production Market, Labor : Y d d = =
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Savings Choice + - - - d d pvt C S ) INT TR T ( Y : PDI { } d gov d pvt S G INT TR T : S S - - - +
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Factors Affecting d S Movements Along d S :Real Interest Rate Shifts in d S Variable Change Shift Current Income Y Right
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ch4notes - Goods Market Equilibrium (Closed Economy) Output...

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