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Unformatted text preview: Labor productivity and real wages • Some empirical data Q2: Why does the demand for goods and services (C+I+G+NX) equal the supply of goods and services (potential output) in the long run? The demand for goods and services: • Consumption and saving • Investment • Government spending • Ignore net exports for now (topic of chapter 5) • Factors that affect consumption, investment, and government spending • Desired capital stock and the user cost of capital Definitions: • National saving • Private saving • Public or government saving • Crowding out If potential output = C+I+G then national saving = investment The real interest rate adjusts in the loanable funds market to balance national saving and investment. Equilibrium in the loanable funds market for a closed economy....
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- Fall '10
- Economics, Cobb Douglas, loanable funds market, constant returns