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Chapter 4

ECN 204 Chapter 4: Week-4-CECN

Course Code
ECN 204
Thomas Barbiero

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Week 4 – CECN
Investment Expenditure
I = F (roi)
There is a relationship between I and ROI
Downward sloping = high interest, low investment
Other factors affecting Investment
1. Availability of resources, more resources more investment (+)
2. Cost of resources, higher cost of resources, less investment (-)
3. Technology (+)
4. Existing capital stock (-) higher existing cap, lower future investments
5. Future expectations (+) e.g state of economy
6. Taxes (-)
According to Keynes, I is autonomous to y/gdp (income)
AE (aggregate expenditure) = C+I
The Multiplier Effect
Change is GDP/ Change in AE = (1/MPS) = multiplier amount
1. The bigger the increase in aggregate expenditure, the higher the increase in gdp (+)
2. The higher the MPS (more that ppl save), The lower the multiplier (-)
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