CHEAT SHEET M2 - Savings and Investment (lec 9, c. 10)...

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Savings and Investment (lec 9, c. 10) First step in SR growth fluctuations= investment I=central element of growth SR model—1 st component: S=I identity—investment in new capital o The market for loanable funds In S=I, S= sY, total savings=income x the savings rt Savings = central component of investment Capital inflows and high savings generate growth HH supply LF, firms demand LF = any $ potentially spent of investment Price of a $ in LF market= nominal IR Expectations of future inflation don’t change real IR, ppl agree on nominal effects and maintain same real interest Higher expected future income less savings today When AEp ≠ rGDP, cause= changes in inventories In consumption function, A=y intercept, MPC=slope C. 12: ↑ in price level ↓ purchasing power ↑ IR LRAS—price level doesn’t affect output because all prices change by same proportion—( prices fall, so do input prices) AS harder for gov’t to shift than AD because AS price level and output move opposite Setting up AD-AS lecture: when we add gov’t to AEp and rGDP model, o change consumption function: Yd Y – T + TR o change agg expenditure eq: rGDP = C + I C + I + G
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This note was uploaded on 02/02/2011 for the course ECON 102 taught by Professor Rossana during the Fall '08 term at University of Michigan.

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CHEAT SHEET M2 - Savings and Investment (lec 9, c. 10)...

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