1. slide 0 Types of Investment  Business fixed investment: businesses’ spending on equipment and structures for use in production  Residential investment: purchases of new housing units (either by occupants or landlords)  Inventory investment: the value of the change in inventories of finished goods, materials and supplies, and work in progress.

2. P T P TP T P T P slide 1

3. slide 2 Evidence for the Accelerator Model 1982 1991 1974 1971 1977 1975 1980 1983 1993 1998 1984 1997 2000 1999 Inventory investment (billions of 1996 dollars) 100 80 60 40 20 0 -20 -40 Change in real GDP (billions of 1996 dollars) -200-1003004005002001000

4. slide 3 CASE STUDY: Bank failures in the 1930s From 1929 to 1933,  Over 9000 banks closed.  Money supply fell 28%. This drop in the money supply may have caused the Great Depression. It certainly contributed to the Depression’s severity.

5. slide 4 Table 18-1: The Money Supply and its Determinants: 1929 and 1933 cr rose due to loss of confidence in banks

6. slide 5 Table 18-1: The Money Supply and its Determinants: 1929 and 1933 rr rose because banks became more cautious, increased excess reserves

7. slide 6 Table 18-1: The Money Supply and its Determinants: 1929 and 1933 The rise in cr and rr reduced the money multiplier.