Draw a CLG of the PPC, with consumer goods on the horizontal capital and axis goods on the vertical axis. Indicate a point on your graph, labeled X, that represents full employment and a possible combination of goods produced. PPC Cheat Sheet here. Assume that there is an increase in the country’s nationwide savings. Draw a CLG of the loanable money market, showing the recognizable change in the real interest from the increase in savings. Fiscal Policy Cheat Sheet here. Recognize that if savings is increasing then your supply of loanable money is increasing. If the supply of loanable funds is increasing the RIR then, real interest rate is falling.
Higher rate of cost savings implies a higher rate of capital investment which will lead to more future development. The LRAS shall upsurge in the long-run as cost savings increase, consumption and investment will increase. Investment will increase in capital goods and therefore future growth can be expected with a shifting rightward of the LRAS curve.
On the other hand, if you include much risk in your stock portfolio too, the money for your goal might not be when you need it there. A portfolio heavily weighted in stock mutual funds would be a bad strategy for a short-term goal, such as saving for a family’s summer vacation. Your age also performs an important role in your risk tolerance.
- Vinyl – 10 years
- Harish works in USA and sends money to his family in India
- Facilitating usage of credit to