ECN 101 Lecture Notes - Lecture 15: Real Interest Rate, Money Illusion
Document Summary
Some will be better off in terms of real income, some will be worse off. However, the economy in the aggregate does not become better or worse off. Savings- portion of income not devoted to satisfying current needs) (flow) Wealth- the value of the stock of assets accumulated from savings. Ie: the money you save goes somewhere it doesn"t just sit there you may use that money to purchase assets, so assets are still part of wealth. Financial assets- money, shares, interest bearing shares . Physical assets- property, gold, diamonds and consumer durables. Net worth- difference between the assets and liabilities. Wealth is the value of the stock of assets accumulated from. As income rises, savings rise, and wealth can rise too note: flow variables are measured with respect to time. (/month) Savings are not the only way wealth increases. Capital gains and capital losses also change wealth by changing the value of existing assets.
