Bochi Liu Econ 100B Sec 112 Pro #6 2. The investment curve is the inverse relationship between the current interest rate, r, and desired investment. It is downward sloping because the higher interest increases the user cost of capital and reduces the desired capital stock. The saving curve is the positive relationship between the current interest rate, r, and desired saving. It is upward sloping because the higher interest increases return to saving. The intersection of the investment and saving curves generate the equilibrium interest rate, where the desired saving equals to the desired investment. 3. Endogenous: interest rate Exogenous: current output, expected future output, wealth, government purchase, tax rate, depreciation rate, price of capital. 4. A rise in current output; a fall in expected future output; a fall in wealth; a fall in government purchase; a rise in taxes would increase the desired saving and shift the saving curve to the right. A rise in current output increases both saving and consumption.
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