The Equilibrium And Current Equilibrium Essay
a. The current equilibrium interest rate- Each dollar save will increase at any given interest rate, so the desired saving curve as an upward-sloping supply will shift rightward. Eventually, this will cause the equilibrium interest rate to decline.
b. Current equilibrium real GDP- There is no effect on current equilibrium real GDP because people are saving now to invest in the future and in the classical model the vertical LRAS always applies.
c. Current equilibrium Employment- There is not effect on the current equilibrium employment because a change in the saving due to the interest rate does not directly affect the demand for labor or the supply of labor in the classical model.
d. Current equilibrium investment- A decrease in the equilibrium interest rate, business wish to engage in more investment because it is more profitable to invest. This will cause a rightward and downward movement along the demand curve for investment. The desired investment will increase.
e. Future equilibrium real GDP- If there is an increase in current investment, it will contribute to an addition to the nation’s capital stock or capital accumulation. This will indicate an increase in future productions and higher equilibrium real GDP in the future.
11-3. “There is absolutely no distinction between the classical model and Chapter 10’s model of long-run equilibrium.” Is this statement true or false? That statement is false because the classical model…