Unit 3: 02/22/16

Investment Demand Curve

What is the share of investment demand curve?

-downward sloping 

Why?

• when interest rates are high, fewer investment are profitable. When interest rates are low, more profitable investments.

Shifts in Investment Demand (ID)
• lower cost shift ID ->
• higher cost shift ID <-

Business Taxes
• lower business taxes shift ID ->
• higher business taxes shift ID <-

Technological of Change
• new technology shifts ID ->
• lack of technological change shift ID <-

Stock of Capital 
- if an economy is low on capital then ID   ->
- if an economy has much capital then ID <-

Expectation 
- positive expectation shift ID ->
- negative expectation shift ID <-

Classical Range v. Keynesian Range

Classical

• competition is good

• the invisible hand (the market will fix itself no government intervention)

Long-run

-- Economy will balance at full employment!!

• trickle down effect ( help the rich first and the everyone else second )

• economy is always close to or at full employment 

Keynesian

• competition is flawed 

• AD is the key not AS

• leaks and savings cause recession 

• ratchet effect & sticky wages block Say's law

• in the long-run we are all DEAD!