Full employment equilibrium exists where AD intersects SRAS & LRAS at the same point
Recessionary GAP
- A recessionary gap exists when equilibrium occurs below full employment out put
- Anytime have recessionary gap graph move to the left.
- An inflationary GAP exists when equilibrium occurs beyond full employment output
- Ad will move to the right
Interest Rate
what is investment?
- Money spent of expenditures on
- New plant (factories)
- Capital equipment (machinery)
- Technology (hardware software)
- New homes
- Inventories (goods sold by produces
- How does business determine the benefits?
- How does business count the cost
- Interest Cost
- How does business determine the amount of investment my undertake
- Compare expected rate of return to interest cost
- If expected return> interest cost
- If expected return< interest cost then do not interest.
what's the difference?
- Nominal is the observable rate of interest. real subtract out inflation (pie%) and is only known ex post factor
- how do you complete the real interest rate (r%)
- r%= I%- pie%
- what then determine the cost of an investment decision?
- The real interest rate (r%)
Usually the inflationary gap is the unattainable point in the PPC because we don't have enough resources or the technology. I love your blog btw :)!
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