through investment, as we lower interest rates, more investment project become profitable and we assume that firms
would borrow at the lower interest rates to take advantage of the idea that the expected return would be larger -- more
likely to be larger than the cost of borrowing as we lower the cost of borrowing, of course right? And then we talked -
- G we didn't talk much about, because we assume that that's exogenous. And then we talked about the net exports and
we said that, you know, the value of the currency plays a role in the net exports. The stronger the dollar, the more
imports; the less exports. We talked about relative inflation rates. That if our inflation rate is higher than Europe, then
of course we're going to buy more imports, because that's suggesting that how else constant the relative price of
European goods follows as our inflation rate rises. And then of course the growth rates. We argued a lot that, you
know, the strong economy is going to cause the trade deficit to widen because our appetite on marginal propensity is
import, our appetite goes up, the stronger we grow relative to our neighbors, right? So that takes care of pretty much of
homework 6, but then we moved -- or Lesson 6 -- we move into Lesson 7, and we're still talking a lot about aggregate
demand. We talked about deriving the aggregate demand. Connecting the aggregate expenditure model to the
aggregate demand model. I will let you know that there is -- and in homework 6 we had an aggregate expenditure
problem, so I can promise that there is, in fact, an aggregate expenditure problem on the exam. So I'd review those
lectures as well as the homework, and make sure you have this aggregate expenditure model nailed down, both with
the algebra as well as the graphic. So you should be fine with that. We talked about the shifts in aggregate
demand/aggregate expenditure, and there are a lot of them. All of them that chuck the consumption function; the
investment function and net exports along with G & T of course. How we did talk about determinants of investment
again. Let's see, what else did we do here? We also talked about the adjustment to equilibrium, where if we have a

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- Fall '10
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- Inflation, Monetary Policy, Great Depression, Federal Reserve System