sequalsi

sequalsi - Selected Lecture Notes Saving and Capital...

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Slide 10 - 0 Saving and Capital Formation Selected Lecture Notes
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Slide 10 - 1 The Identical Equality of Saving and Investment in a Modern Economy: National Income Accounting
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Slide 10 - 2 Saving and Capital Formation u This chapter is about the relationship between Saving and Capital Formation (Investment.) u Relationship between Saving and Investment u The Simple Economy: Robinson Crusoe u If Robinson picks 10 coconuts and only eats 8 then he has Saved 2 coconuts AND he has Invested then same 2 coconuts in his inventory of coconuts! u Thus, Saving is exactly equal to Investment!
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Slide 10 - 3 Saving and Capital Formation u Alternatively, Robinson could have worked only long enough to pick 8 coconuts for his current consumption and spent the rest of the day building a ladder that would make him more productive picking coconuts in the future. u Of course, this would only be a good idea if the present value of the additional amount of future coconuts he can produce using the ladder is more than equal to the amount of coconuts he currently forgoes in order to build the ladder is!
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Slide 10 - 4 Saving and Capital Formation u On the other hand, he may still want to save two coconuts out of his current production because it can protect his ability to consume in the future on days when he cannot pick coconuts (bad weather.)
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Slide 10 - 5 Saving and Capital Formation u In the Simple Robinson Crusoe economy there is an obvious and direct relationship between Saving
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This note was uploaded on 07/20/2008 for the course ECON 101 taught by Professor Lemche during the Spring '05 term at UBC.

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sequalsi - Selected Lecture Notes Saving and Capital...

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