Manufactured goods that are used to produce other

This preview shows page 5 - 8 out of 14 pages.

manufactured goods that are used to produce other goods and services (human capital = knowledge and skills workers acquire from education, training, life experiences) Compare Graph pg. 687 for Supply Demand relationship graph for loanable funds and interest rates When there is an increase in demand for funds, D shifts to the right, increasing equilibrium quantity of loanable funds There was the Industrial Revolution… Economic Growth model: explains growth in real per capita GDP in the long run Patents: exclusive rights to a product for a period of 20 yrs after invention (importance of entrepreneur, quote Schumpeter…) ---- Financial system: financial markets and financial intermediaries
Image of page 5

Subscribe to view the full document.

Firms acquire funds from households in two ways: o Directly (through financial markets – i.e. stock and bond markets) o Indirectly (banks) These funds are savings o Two types: Private savings by households Public savings by the gov’t Value of total savings = value of total investment spending (!) Market for loanable funds: the interaction of borrowers and lenders determines the market interest rate and the quantity of loanable funds exchanged - --- What about in the US? o Grew rapidly from WWII to the mid-1970s, then slowed, increased again after 1995 Why slowdowns? Measurement problems High oil prices Decline in labor quality Pick-up in 1990s possibly due to “new economy” based on IT ---- Catch up: poor countries grow more quickly than rich countries why did some countries not grow faster? o War & Revolution o Poor public education and health o Failure to enforce the rule of law o Low rates of sabing in investment “Globalisation: has aided countries that have opened up their economies to foreign trade and investment” Foreign Direct Investment (FDI): purchase or building of a facility by a foreign company Foreign Portfolio Investment: purchase by an individual or firm of stocks or bonds issued in another country Chapter 23 Aggregate expenditure: macroeconomic model that focuses on the short term relationship between total spending and real GDP, assuming that the price level is constant AE = C + I + G + NX When AE > GDP, there is an unplanned decrease in inventories (goods that have been produced but not yet sold) -> GDP and total employment increase
Image of page 6
When AE < GDP -> unplanned increase in inventories -> GDP and total employment decrease When AE = GDP -> economy in macroeconomic equilibrium ---- Consumption contains multiple variables, but the most important are: o Current disposable income Income remaining after taxes and receiving transfer payments (e.g. Social Security) o Household wealth Assets minus liabilities of a household o Expected future income o Price level Average prices of goods and services in an economy o Interest rate Use real (rather than nominal) interest rate ----- Consumption Function: the relationship between consumption spending and disposable income Marginal Propensity to Consume (MPC) : slope of the consumption function; the amount by which consumption spending changes when disposable income changes: o o (Interpretation: a MPC of 0.9 means that household spent 90% of the increase
Image of page 7

Subscribe to view the full document.

Image of page 8

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern