DEFINITIONS M2 - Factors that shift D of LF Change in...

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Factors that shift D of LF Change in expected profits (expected RoR)—PERCEPTIONS/perceived biz opportunities o Expected RoR ↑ D ↑, expected RoR ↓ D ↓ Factors that shift S of LF Changes in private savings behavior o Savings ↑ S ↑ Changes in capital inflows Changes in expected profitability of lending o Risk ↓ S ↑ Changes in gov’t borrowing o ↑ gov’t borrowing ↓ S Changes in expectations of future inflation Factors that shift AEp (AEp is a function of): ∆ in Ip (∆ in IR) ∆ in consumption function (∆ in agg wealth) Size of resource stock [lg less investment] Expected future rGDP [high expected high actual] Factors that shift aggregate consumption function: ∆ in expected future disposable income [↑future income, ↑consumption] ∆ agg wealth [↑ wealth, ↑ willingness to spend] ∆ price level [↑ prices, ↓ consumption] Factors that shift aggregate demand ∆ in expectations [↑ optimism ↑ D, ↓ optimism ↓ D] ∆ in wealth [↑ real value of assets ↑ D, real value of assets ↓ D] ∆ in size of existing stock of physical capital [small stock ↑ D, lg stock ↓ D] ∆ in fiscal policy [recession—cut taxes/increase spending D↑, inflation—inc taxes/cut spending D ↓] ∆ in monetary policy [recession: ↑ MS ↑ D (IR ↓), inflation: MS ↓ D ↓ (IR ↑)] Factors that shift SRAS: ∆ in commodity prices [↑ prices ↓ S, ↓ prices ↑ S—commodity prices are a production cost] ∆ in nominal wages [↑ wages ↓ S, ↓ wages ↑ S] o Change costs of production ∆ in productivity [↑ productivity ↑ S, ↓ productivity ↓S] Factors that shift money demand: ∆ agg price level [↑ prices ↑ D, ↓ prices ↓ D] o proportional, if p level rises, higher prices, need more $ to buy same g&s
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∆ in rGDP [↑ rGDP ↑ D, ↓ rGDP ↓ D] o Consuming more “stuff” requires more $ ∆ in technology [↑ technology ↓ D, ↓ technology ↑ D] o Makes it easier to purchase w/o holding cash—allows ppl to hold less at any instant ∆ in institutions [allowing interest on checking accts, for ex, ↑ D—vs interest bearing asset] o Regulations over value/use of $-- ex former ban on checkable acct interest Budget balance : difference b/w gov’t spending and revenue National savings = private savings + budget balance Crowding out : gov’t deficit reduces S of LF thus IR ↑ and reduced inv spending Fischer effect: increase in expected future inflation drives up nominal IR, real IR is unchanged, nom increases by exactly amnt of inf Financial asset:
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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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DEFINITIONS M2 - Factors that shift D of LF Change in...

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