ECO-2013 Lecture Notes - Lecture 9: Aggregate Supply, Potential Output, Foreign Exchange Market
Document Summary
Works just like the market for goods, only with a different name for price (wage) and quantity (employment) Labor demand: firms demand labor, labor demand curve is downward slopping b/c as wage decreases, firm will want to employ more people. Labor supply: workers supply labor, labor supply curve is upward slopping b/c as wage increases, people will want to work more. Business want workers to work more for less money and workers that want to work less for more money, therefore we have the market equilibrium. Market that coordinates the borrowing and lending decisions of business firms and households. Price of loanable funds is the real interest rate (r) Quantity of loanable funds is the amount saved/invested (qs,i) Demand for loanable funds: firms demand loanable funds (investment, downward slopping b/c as the interest rate decreases, firms will want to borrow more money. Increase in investment demand curve will shift right. Decrease in investment demand curve will shift left.
