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ECON 205 (17)
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Lecture 3

Lecture 3- L

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Department
Economics (Arts)
Course
ECON 205
Professor
Tom Velk
Semester
Fall

Description
Review of Last Classwhat we did last time is to explain the shape of the IS curve3 versions of how to understand itthe idea of the curve is that we have an argument thats supposed to associate the interest rate with the level of incomehaving to do with the multiplierinterest rates falling means investment rises but the pizza parlour is not going to defeat the Malthusian threat only Steve Jobs or the likesthroughout spending and respending process income goes up a stimulus of 1 in investment gives an output of 10 via the multiplier IS when savings expansion process draws back but real investment rewardsso called govt investments rarely have Steve Jobs elements to them a great motivator for the politicians is to get themselves reelected so they give money to various parasitesinvestment increased to build that pizza parlour is at the cost of reduced consumptionthe carpenter has less to spend because of those bonds you can increase both investment and consumption as long as there is slack in the economy the number of Americans working in the US did not reach the level that existed in the last months of the Bush administration until just 23 months ago equilibrium in the real financial market LM Curveequilibrium in the money market we get pairs of values for rate of interest and income the balloon is the question of whether or not all the money injected by the Central Bank stimulates the economy so it can expand to some finite level having to do with a combination of interest rate and income until that expansion just stops the central bank is throwing money into the economy and that new money has 2 uses for the citizenryallows us to have a certain level of income hold 5 of money for every 20 of income interest is 5 you want to hold another 20 idle then as a speculative balancealso an idle balancehold some of that money just in your pocket not because you have an income that requires you to spend money at a certain rate but because you are waiting for profit opportunities what is required for stabilityincome 100 interest 5slopes upward because we want to hold more money for socalled income balances if the ratio of 51 holds good and income went to 150 youd
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