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.

P T P TP T P T P slide 1

slide 2 Evidence for the Accelerator Model Inventory investment (billions of 1996 dollars) Change in real GDP (billions of 1996 dollars)

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.

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

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

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