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This 8 page Class Notes was uploaded by Hanna Notetaker on Wednesday March 4, 2015. The Class Notes belongs to CAS EC102 at Boston University taught by Watson in Spring2015. Since its upload, it has received 82 views. For similar materials see Macroeconomics in Economcs at Boston University.
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Date Created: 03/04/15
Investment 02252015 What is investment 0 Plant and equipment 0 Plant and Equipment 0 plant equipment aria saftiiv ir ih a ab ut 78 of all investment in 2014 0 Housing 0 about 18 of all investment in 2014 Inventories 0 Finished goods not yet sold 0 Raw materials not yet used 0 Un nished goods still in production process linivntories 0 about 3 of all investment in 2014 Determinants of Investment Expectations of future pro tability o Optimism or pessimism Taxes 0 Corporate income tax 0 Investment tax incentives Cash ow 0 Real interest rate R and Investment 0 As r goes up 0 More expensive for rms to borrow to buy equipment and build factories and of ce buildings 0 More expensive for families to borrow to buy houses and condos 0 Investment goes down 0 As r goes down 0 Less expensive for rms to borrow 0 Less expensive for families to borrow 0 Investment goes up Financing Alternatives Borrow money 0 Bank Loans external fund 0 Bonds external fund 0 Sell Ownership Shares in the Company 0 Stocks external fund 0 Use Their Own Savings 0 Retained earnings internal fund 03012015 The Macroeconomics of Saving and Investment Fundamental Identity 0 Savings Investment S I 0 Y C I G NX 0 Open Economy An economy which interacts with other economies a Trade in goods and services a Trade in nancial assets 0 Closed economy An economy which has no interaction with other economies a No trade in goods and services a No trade in nancial assets NX 0 n Y C I G n OR I Y C G 0 Private Saving 0 Saving Income Expenditures For households and rms n Income Y TR n Expenditures C T 39 saVlngPrivate Y TR CT 39 TO saVlngPrivate Y TR C T 0 Public Saving 0 Saving Income Expenditures For government a Income T n Expenditures G TR U SavingPuinc T GTR U SavingPuinc T G TR 0 Public Saving and Dissaving o SavingPuinc T G TR T GTR o T gt GTR SavingPuinc positive 0 T GTR No public saving o T lt GTR SavingPuinc negative a Public dissaving National Saving 0 saVlngPrivate Y TR C T o SavingPuinc T G TR 0 National S SavingPrivate SavingPuinc S Y C G 0 Investment 0 Y C G o The Equality of Saving and Investment 0 S Y C G o Y C G o S I The Market for Loanable Funds 0 De nition interaction of borrowers and leaders that determines that the market interest rate and the quantity of oanabe funds exchanged 0 Composed of diverse market which make up nancial system 0 EX Bond market Stock Market Market for bank loans Market for mutual fund shares Supply 0 Private Saving 39 saVlngPrivate 0 Public Saving T GTR Demand 0 Investment 0 Supply Demand 39 saVlngPrivate T GTR I Loanable Funds Market 0 Equilibrium in the Loanable Funds Market Ai equiiliibnium E S i Note This is r Qty of iiunds supplied n 39l Quantity of iiunds demanded As r T there is mere incentive to save 50 offends suppiiedi r 39 I I I I As r is it rms iess to bennw to I nance investment 50 qty of funds I J demendedi I I o 39 39 L Loanable Funds 0 0 Increase in Demand for Loanable Funds Due to an Improvement in Techno gy o T i 7 a L139 L2 Loanablie Funds o Decrease in demand for loanable funds due to increasing business pessimism increase in supply of loanable funds due to an increase in private saving rate 39l i 41 4 4 il 4L o L gtL2 Loanablie Funds 0 decrease in supply of loanable funds due to an increase in government spending G Up or TR Up
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