- Y = C + I + G +NX
- Y - C - G - NX = I
- (Y - C - T) + (T - G) - NX = I
(private saving) + (public saving) + (capital inflow) = (investment)
- private saving: depends on Y=Y*, t, C0, Cy
- public saving: depends on Y=Y*, G, and t
- investment: depends on I0, Ir, and r
- capital inflow: depends on Y=Y*, Yf, Xf, Xe, and e
- e depends on e0, er, rf, and r
Conclusion: look at r
Comments
You can follow this conversation by subscribing to the comment feed for this post.