Lecture 5 Outline

Lecture 5 Outline - b By nature “disequilibrium” c One...

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Lecture 5 Sustainable and Unsustainable Growth – the Austrian Theory of the Business Cycle I. Capital Structure a. Capital Specificity b. Interconnectedness of Capital Structure i. Hayekian Triangles II. Sustainable Growth a. Growth that comes from an increase in the availability of the factors of production b. Can happen through any factor of production i. Land – finding new, sustainable uses for natural resources ii. Labor – having kids! iii. Capital – Investing in capital equipment iv. Entrepreneurship – Uncovering new profit opportunities c. Which is most easily achievable through intentional action? III. Unsustainable Growth a. Defn – a pattern of production which cannot be sustained indefinitely
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Unformatted text preview: b. By nature “disequilibrium” c. One Major Cause: Monetary injections through credit markets i. Monetary injection creates a falsely low interest rate ii. Low interest rate induces spending on consumption and investment 1. Especially investment in long-term capital projects. 2. A “boom” iii. Money flows to households (largely as wages) iv. Households save less (lower interest rates expected) and spend more. v. Interest rates increase due to lower savings. vi. Many projects will no longer be profitable, and are abandoned. 1. The “bust”...
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Lecture 5 Outline - b By nature “disequilibrium” c One...

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