ECON 2035 Chapter Notes - Chapter 4: Adaptive Expectations, Liquidity Preference, Real Interest Rate
Document Summary
Loanable funds framework- looks at what affects the real interest rate: demand for loans investment. Supply for loans excess surplus for funds: saving: saving private + public + net capital inflow. Capital outflow- domestic saver investing in a foreign investment. Capital inflow- foreign saver investing in a domestic investment. Net capital inflow = capital inflow capital outflow. L=labor hours: %change in productivity is what"s important= %changey-%changel, coming out of a recession productivity growth increases. Inflation rates rise when productivity rates don"t keep up with gpd increases. If the interest rate goes up demand goes down => downward sloping demand curve. Interest rate goes up => saving : demands for loans=> investment, capital outflows: funds that us investors would want invest in abroad (v, capital inflows: (^, net capital inflow should ^ Public saving (= tax revenue - gov spending) Foreign investor confidence: capital flight- when foreign investors pull out of investments.