ECO342H1 Lecture Notes - Lecture 8: Time Preference, Interest Rate, Free Trade
Document Summary
Advantage in natural resources compared to european countries. Us starts relying on imports instead of exports starting in 1950s. Exhausts resources, now needs to import raw materials. Because better morale/understand importance of technology following world wars. Interest rates have real component determined by something + monetary component given by quantity theory of money. Interest rate determined by savings and savings determined by time preference which is determined by individuals who have different cultural preferences. Investment determined by marginal productivity of capital, savings is expectation that interest rate has to rise to compensate people which leads to equilibrium interest rate. At full employment, must save more (give up consumption) for more investment. If not at full employment, do not need to save because people/resources are idle. Savings unnecessary, and if you are to save does not mean you will invest. Investment causes economy to grow which causes savings to grow because s=i.
