Topic 8: The Equilibrium In The Goods

Macroeconomics (SHAD 1053)

by LIM HUI YING

After studying this topic, we know that

* Equilibrium in the goods market exists when production, Y, is equal to the demand for goods, Z.

* the interest rate did not affect the demand for goods. The equilibrium condition was given by:

Y = C(Y-T) + I + G

* In this chapter, we capture the effects of two factors affecting investment:

¤The level of sales (+)

¤The interest rate (-)

Topic 8: The Equilibrium In The Goods Market

Posted on 27 April 2018, 11:34 AM
Last updated 27 April 2018, 11:35 AM

After studying this topic, we can know the investment is no longer treated as exogenous, but depends upon the interest rate (endogenous) and the investment demand is inversely related to interest rates. Next, we know that the Interest rate is the cost of borrowing money and the increased interest rate raises the price to firms of borrowing for capital equipment reduce the quantity of investment demand

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