ECON102 Lecture Notes - Lecture 8: Shortage, Excess Supply, Gdp Deflator

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ECON102 Full Course Notes
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ECON102 Full Course Notes
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Document Summary

Positive relationship (as one variable increases the other also increases: when disposable income increases, both consumption and savings are going to increase. Positive relationship: when expected future earnings increase, we expect more money to come into the household in the future, so the individual will be consuming more and finds no need to save and savings decrease. Negative relationship (as one variable increases the other decreases): when budget surplus increases, that means that the government has extra money (surplus), and the public savings by the government will increases, and thereby national savings will increase. Positive relationship: when budget deficit increases, government needs to borrow or take out money from their own savings (that is public savings). Interest rate as a function of national savings. Excess supply of funds, savers and lenders compete to lend their money. Leads to lower interest rates as investor want to get rid of the money.

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