Lesson 7ª Continuation

 

 

 

 

 

    

CONSUMER MARKET'

The curve slopes down (reverse relationship between investment and interest rates). 

Let's analyse how the curve works:

Variations in interest rates produce movement along the curve.

Whilst variations in the level of income start movements in the curve:

If income increases the curve moves right: for a determined interest rate the investment will be greater.


The Y axis: Interest Rate    The X axis: Investment

If income decreases the curve will move left: for a determined interest rate the investment will be less.


The Y axis: Interest Rate    The X axis: Investment

3. Public expense and net foreign trade

In order to simplify matters, we are going to consider both fixed terms. However,

in the case of public expense there is a direct relationship with the level of income.

If income increases taxes also increase, therefore the State collects more and can spend more.  

 

  
     
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