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Lecture 58

ECON 1020 Lecture 58: Lecture 58

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University of Manitoba
ECON 1020
Ryan A.Compton

oS82 3. Expectation: future prices or income Expectation of higher prices in the future may increase consumption and decrease saving today (before the prices go up) 4. Real Interest Rates (i): When real interest rate (i) fall, people borrow more, consume more and save less today Lower real interest rate will shift the consumption function upward and saving function down 5. Taxation: Taxes are paid at the expense of consumption and saving, so an increase in taxes leads to less consumption and saving Therefore shifting the curves down *** INCOME on Xaxis (causes a SHIFT in the function) *** If DISPOSABLE INCOME is on Xaxis (causes a SHIFT ALONG the function) FIGURE 84: Shifts in the Consumption and Saving Schedules: Xaxis is Real GDP (output) The Interest RateInvestment: Expected Rate of Return (r): o Expected (the amount () that you BELIEVE you will get in return) Profit a firm anticipates from purchasing capital (making an investment) The Real Interest Rate (i): Real Interest Rate (i) = nominal rate rate of inflation o Crucial in making investment decisions If interest rate > expected rate of return dont invest If expected rate of return > interest rate invest Investment Demand Curve: A curve which indicates the amount of investment demanded by an economy at a series of real interest rates
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