Richard Damra Monday, February 4, 2013
Econ 1BB3 – Chapter 8
Is a government budget deficit bad for the economy?
Demand: Negative relationship between investment and the interest rate.
Supply: Positive relationship between saving and the interest rate.
Government borrowing will affect the supply not demand
o Anything that affects investment (other than the interest rate)
o When interest changes the demand curve stays where it is and we move along that
stationary demand curve we call that change in Qd(Quantity demanded) of loan able
o Anything that affects private savings (other than the interest rate)
o Anything that affects public saving
o Investment tax credit is put in place to encourage investment causing demand for loan
able funds to increase. If taken away demand for loan able funds decrease
Comparative statics examples
In the following cases, use a market diagram to show what happens