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The Saving – Investment Link

The Saving – Investment Link. What May Cause a Recession in the Short Run will Definitely Enhance Economic Growth in the Long Run. AS-AD. LRAS. We begin with an economy at full employment. . SRAS. PL. AD. Loanable Funds Market. RGDP. Sfunds. Real i.r . Dfunds. Qfunds. AS-AD.

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The Saving – Investment Link

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  1. The Saving – Investment Link What May Cause a Recession in the Short Run will Definitely Enhance Economic Growth in the Long Run

  2. AS-AD LRAS We begin with an economy at full employment. SRAS PL AD Loanable Funds Market RGDP Sfunds Reali.r. Dfunds Qfunds

  3. AS-AD If people decide to save more,we see a short-run effect on both AD and interest rates. S up  C down  AD down S up  Sfunds up  real i.r. down LRAS SRAS PL AD AD1 Loanable Funds Market RGDP Sfunds Sfunds1 Reali.r. Dfunds Qfunds

  4. AS-AD While I spending should rise, it probably won’t rise enough to make up for the decline in C, hence a recession in the short run. BUT . . . LRAS SRAS PL AD AD1 Loanable Funds Market RGDP Sfunds Sfunds1 Reali.r. Dfunds Qfunds

  5. AS-AD 4. Lower interest rates WILL increase I spending some and, to that extent, the economy will experience faster economic growth in the Long Run. Remember: I spending is spending on machines and factories. The result? More RGDP per capita (bigger slices of pie)!! LRAS SRAS faster PL AD AD1 Loanable Funds Market RGDP Sfunds Sfunds1 Reali.r. Dfunds Qfunds

  6. Here’s the whole walkthrough: S up  C down AD down  Y down, PL down, unempl. Up S up  Sfunds up  real i.r. down  I up . . . LRAS up faster (PPF out faster) in Long Run

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