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Unformatted text preview: Investment and planned investment In measuring GDP we have seen total investment includes the change in firms’ inventories. So in national income accounts, that is GDP accounting, total investment is the sum of planned investment and the change in inventories: I = Total Investment = I p + change in inventories. Note: It is always the case that Y = C + I + G + NX Only when the output market is in equilibrium will it be the case that Y = C + I p + G + NX Government Purchase, G Total government spending = G + transfer payments This spending is financed with taxes or by borrowing so G + transfer payments + = Total taxes + loans or G- T loans to the government T = Net taxes = total taxes – transfer payments Supposed Y = Y f >C + I p + G what happens? Answer: the rate of interest, R, will decrease. This causes 1. Consumption to increase and 2. Planned investment to increase R continues to decrease until……. ....
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This note was uploaded on 04/01/2008 for the course ECON 2006 taught by Professor Rdcothren during the Spring '08 term at Virginia Tech.
- Spring '08