ECON 1125 Lecture Notes - Lecture 10: Parsec, Real Interest Rate, Fiscal Multiplier
4 Apr 2016
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Document Summary
One major point: the importance of spending: america runs on spending! Contents: the four spending groups, their size, their exogenous variables, and the spending multiplier. The dollar value of goods and services produced. The dollar value of the income earned in their production. The dollar value of spending from the four spending groups on what was produced. Consumer spending, c = 70 % of rgdp. Investment spending, i = 10 % of rgdp. Government spending, g and = 25 % of rgdp. C = f (income, wealth, r, expectations, cc) Xn = x m = f( foreign rgdp, our rgdp, and r ) It"s clear that the real interest rate plays a big role in spending and the spending that is very interest rate sensitive is investment spending, so that"s a good place to start. So, we should look at the investment function and the real interest rate.
