ECO209Y5 Lecture 10: Lecture #10 – A Real Intertemporal Model with Invetment II
Document Summary
Lecture # 10 a real intertemporal model with invetment. G + g1/1+r = t + t1/1+r. W adjusts so that supply = demand. We want output supplied as a function of r r2>r1 = ns shifts up output, y, rises. Increase in wealth = decrease in ns(r) = y* goes down because. N* goes down (output supply curve shifts left) Increase in z = y shifts up and mpn goes up therefore nd shifts right to increase y*(output supply shifts right) Increase in k = y shifts up and mpn goes up, therefore nd shifts right and y* increases (output supply curve shifts right) Components of yd yd = cd(r) + id + g = y. When we plot cd(r) id(r) against y, slope is still mpc. Cd(r) goes down since current consumption is relatively more expensive. Id(r) goes down since there is less incentive to invest.
