Economics Notes 11.19.07

Economics Notes 11.19.07 - Sav< I Savings = Investment(Y...

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Closed Economy S = I r s (savers) d (borrowers) Qty. of LF S = Y – C – G = Y – C – T + (T – G) Y – C – T Private savings T – G Public savings Policy 1: Tax code is changed to encourage more savings Shift supply curve out (level of savings exceeds level of investment) Sav > I Interest rates are lower Policy 2: Give firms an investment tax credit Shift demand curve out (more firms will want to borrow) Higher interest rate in long run
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Encourages more investment (more economic growth)
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Unformatted text preview: Sav < I Savings = Investment (Y – C – T) + (T – G) = I Budget Deficit T <G Budget Surplus T>G What is the LR implication of a budget deficit? Interest rates will rise in the long run, level of savings and investment decreases (crowding out) Net exports (NX) = exports – imports Open Economy Y = C + I + G + NX Y – C – G = Savings = I + NX S = I + NX S – I = NX NX = NCO (net capital outflow) Savings (S) = I (Investment) + NCO...
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Economics Notes 11.19.07 - Sav< I Savings = Investment(Y...

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