Econ 104 1st Edition Lecture 17 Outline of Last Lecture I Factors that Affect the C function II Example Graphs Outline of Current Lecture II Marginal Propensity to save III Aggregate Expenditure IV Factors of Investment Current Lecture I i ii The Marginal Propensity to Save MPS Change in S Change in Y d a If you know the MPC you can solve for the MPS i MPC Marginal Propensity to Consume ii Yd C S iii 1 C Yd S Yd iv 1 MPC MPS Aggregate Expenditure AE a AE C I G NX AD b Investment Expenditures I i Approximately 17 of RGDP ii Includes Spending by firms on 1 Office buildings factories machines delivery trucks software etc capital goods 2 Inventories 3 Research and Development R D Investment Capital Stock a Recall i A nation can accelerate economic growth by increasing the capital stock investment PPF shifts outward ii Investment expenditures increase the nation s future standard of living iii Investment over the Great Recession fell dramatically iv Investment is more volatile than Consumption v Investment Demand Graph These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute r Id i Factors that affect the I function a Move along the I demand curve i Real interest rate r 1 A firm will undertake if a Expected real return on I is greater than or equal to the Interest Cost b EX Home depot wants to open 5 new stores in PA i Expected return of I is 12 and cost of borrowing is 8 1 They will do it because profitability is higher than interest cost b Shift the I demand i Expectations of future profitability 1 Reflects firms confidence I the future a Optimistic I demand shifts right b Pessimistic I demand Shifts Left 2 Keynes I is driven by animal spirits a Animal spirits reflect business confidence ii Technological Change iii Business Taxes
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