Prosperity and Depression.pdf

Chap. 8•{;Recent Discussions on the Trade Cycles1 M I I\ I I I\ t I I,: / Ii I /1\ I /l\ / II \ I /; \ II \ ID r--__..:.E-tI_---l~F----~'+_-__I_..:..:.---~/~\cr---~-----I-:------___*'\"­'L,S .. MI+LO~--~---------A"'--;""--~.B~---"'""S is the supply schedule of saving, showing how muchwould be saved (measured horizontally) at each rate of interest(measured vertically). I is the schedule of investment showinghow much would be invested (measured horizontally) at eachrate of interest. These two schedules intersect at Pc, the, classical' point of equilibrium, which shows the rate ofinterest being determined at that level (APJ at which savingequals investment, both being equal to GA. L is the scheduleshowing the amount of net ' hoarding , that would take placeat each rate ofinterest. In the figure, this is shown as a positiveamount (i.e., at all the rates of interest considered, there wouldbe a net balance of' hoarding' and not a net balance of' dishoarding') which is greater for lower rates of interest. There is noreason for expecting C hoarding , always to outbalance' dishoarding'in the economy, and this is taken to be so in the figuremerely for the purpose ofsimplifying the diagram. ' Hoarding'could be taken as· a negative quantity at some or at all rates ofinterest (and ,shown by the L curve falling to the left of thevertical axis) without affecting the argument in any way.