unintended investment investment function planned + unplanned investment = investment autonomous aggregate expenditures doesn't vary with real gdp level induced aggregate expenditures varies with real gdp level aggregate expenditures function aggregate expenditures = consumption + planned investment shape of aggregate expenditures curve aggregate expenditures/real gdp (between 2 points only!) Y= real gdp multiplier function Δ autonomous aggregate expenditures/(1-marginal propensity to consumer) equilibrium real gdp occurs when... when aggregate expenditures = real gdp steeper aggregate expenditure curve...
larger multiplier flatter aggregate expenditure curve... smaller multiplier components of investment stock additions, nonresidential structures, residential investment, change in private inventories depreciation consumption of a fixed capital net investment equation gross investment-depreciation gross private domestic investment stock additions to private capital higher interest rates and investment higher interest rates reduce quantity of investment investment demand curve shows quantity of investment demanded at each interest rate with all other determinants unchanged determinants of investment expectations level of economic activity stock of capital capacity utilization cost of capital goods other factor costs
technological change public policy stock of capital investment replaces depreciated capital greater capital stock reduces investment capacity utilization capacity utilization rate measure percentage of capital stock in use repatriated profits off shore profits Jobs creation act tax break on repatriated profits to spur job creation entitlement spending government spending on automatic spending (programs people are entitled to like social security and compensation) savings equals .... investment equals... Business cycle facts there have been 11 since world war 2 are irregular and not periodic contractions last about 11 months expansions last about 59 months Business cycle causes
demand shocks internal dynamics of economy multiplier acceleration economic waves what would Keynes do he would increase government spending principal agent problem owners and employees have different incentives money anything that serves as a medium of exchange medium of exchange anything that's widely accepted as a means of payment functions of money medium of exchange unit of account store of value barter when goods are exchanged directly for other goods unit of account consistent means of measuring value store of value an item that holds value over time commodity money money that has value apart from its use as money fiat money
money that an authority has ordered to be accepted as a medium of exchange currency paper money and coins checkable deposits balances in checking accounts check
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