Scot Wick Blog

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 9 The Real Economy in the Long Run Chapter 26 of 36 Saving, Investment, and the Financial System Section 21 of 25 … Figure 3 - Investment Incentives Increase the Demand for Loanable Funds Results of passage of an investment tax credit by government: · encourages firms to invest more · the demand for loanable funds increases · the equilibrium interest rate rises · the higher interest rate stimulates saving On Figure 3: -1- an investment credit causes the demand curve to shift from D1 to D2 -2- the equilibrium interest rate rises from 5 percent to 6 percent -3- the equilibrium quantity of loanable funds saved and invested rises from $1,200 billion to $1,400 billion … Three government policies that affect the economy's saving and investment: Policy 1: saving incentives Policy 2: investment incentives Policy 3: government budget deficits and surpluses … Policy 2: Investment incentives Congress sometimes pa...

  Profits Are Good, The More The Better, They Create Wealth, Jobs and Economy Growth … How do profits create wealth and economy growth? Inputs, including labor and raw materials, into Company A cost $100. Product created from those inputs sells for $110. Adding up all businesses, the economy had e.g. $100,000 of wealth before but it now has $110,000. … Per Figure 1, potential competitors see the Q1 sales quantity and P1 prices and can estimate profits of Company A. They are incentivized to start up competing companies or start making the same product at their existing company. Competition among multiple suppliers results in · increased product supply, moving from Q1 to Q2 . increased employment because of the increase of quantity produced · reduction of product price, from P1 to P2 Product quality and variety also increase due to competition. … In a market economy any person or group is free to start a new competing company, but they must: · have required skill/knowledge · have or ...