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This chapter covers the simplified case of a closed economy where income from exports and foreign direct investment , as well as expenditure owing to imports and payments to holders of government bonds are not considered In this core set of GDP calculations , expenditures in the form of consumption and investment , itself assumed to productively absorb all savings In this simplified model , demand for investment is at an equilibrium at some moderate interest level

Investment in terms of funding long-term R D , putting up new production facilities or even budgeting for a new product launch supported by massive advertising can all be stymied because the cost of capital (whether in terms of return sought by stock holders , by bond markets , by banks making loans or by the stock market may be too high for the real returns on investment Chapter 9 The Aggregate Expenditures Model Given the great diversity of the economy , one imagines that it must take a massive number of inputs and calculations to come close to estimating overall size and growth , even assuming all data requirements are up to date

Businesses are reluctant to invest , consumers feel the pinch of unemployment and reduced overall income , and financial institutions are the most cautious of all Chapter 14 : Interest Rates and Monetary Policy One of the more controversial aspects of government management of the economy comprises the policies and actions of the Fed

So , it would seem from this that we have fallen behind in setting aside the savings needed for regular investment , for developing scientific breakthroughs we need to maintain our manufacturing superiority and for funding such gaps as the Federal deficit and trade imbalances with countries like China and Japan There is also that portion of income that is saved , with the propensity to save markedly higher once income crosses a certain threshold

When I look at the historical trend , I see that the two peaks coincided with extreme oil shocks ‘ so I am worried where we might be a year from now if the price of a barrel of crude oil does breach 100 Chapter 8 : Basic Macroeconomic Relationships The key concepts I learn about here have to do with income , consumption savings , investment and interest rates All economic activity is fuelled by the velocity of money that consumption brings

I especially liked the concept of productivity because it means that we continue to forge useful R D discoveries , we use our labor /capital /raw material resources better , maintain our lead as the largest economy in the globe and give Americans in general the benefit of producing just as much or even more in less time

Beyond that equilibrium point , continued increases in savings , with investment held constant , will go hand in hand with an increased rate of unanticipated product stockpiling because income and consumption do not grow as fast My thought is that equilibrium analysis is more a didactic model than a reflection of the real world

One lesson I take away from this is that we depend on the sheer size of a 13 trillion economy to have investments available Demand for investment is inversely related to the price it bears

Paper Topic: macroeconomics Chapter 7 : Economic Growth and Instability This initial chapter in my assignment set helps us understand why we often read mixed news about the American economy and all others going through boom-bust ‘ cycles

To every believer in Keynesian supply and demand economics , the prime rate is an authoritative signal of an inflationary or contracting economy

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