uni

t1

I
ntr
oduct
iont
oBui
l
dingEconomi
cs
Bui
ldingeconomicsisconcer
nedwit
hpr oducti
onandconsumpt
ionand
ser
vicesandtheanal
ysi
sofcommerci
alacti
vi
ties–

Asitisrel
atedt
oarchit
ect
ureandbuildi
ngact i
vi
ty–al lty
pesofbui ldings
foral
lty
pesoffuncti
onsbythebuil
ders(product
ion)andconsumpt ioni .
e.,
theoneswhoeitherbuyorhir
ethosebui l
dingsforvari
ousf unct
ionswi th
theservi
cesoff
eredbyprofessi
onalsli
kear chi
tect
s,planners,engineers
etc.

Thestudyofeconomi csisbroadlydiv
idedintotwocategories:
1.MicroEconomics
2.MacroEconomi cs
I
nourpr eviousarti
cle“ I
ntr
oductiontoBui l
dingEconomi csasr elatedt o
Archi
tect
ure“,wedi scussedcer t
ainimportanttermsr el
at i
ngtoBui l
ding
Economics.Thi s arti
cleist he cont i
nuati
on of the st udy of Mi cro
EconomicsandMacr oEconomi cs.Thisart
icl
ewi l
lgi
vey ouabr iefideaof
MacroEconomi csandMi croEconomi cs.
Mi
croEconomi
cs
Itisasmallpartofwhol eeconomi cswhichdealswithindivi
dual
s,t
heir
needs,t
hei
rbehaviour,indi
vidualf
irmsanditsactiv
iti
es.Thisdealswit
h
studi
esli
keincomes,capi talspendingonbuildi
ng,indi
vidual
swho are
engagedi
nvari
ouspr oductsforbui
ldi
ngconstr
ucti
on.

Mi
cro-
economi
csi
sal
socal
l
edPr
iceTheor
y.
I
mpor
tanceofMi
cro-
economi
cs
Itanalyseshowmil
lionsofconsumersandproducer
sinaneconomyt ake
decisi
onsaboutproductsandser vi
cesoffer
ed.Italsodealswithhow
buil
dingsand ser
vicesaredi st
ri
but
ed bel
onging t
o di
ff
erenteconomic
stat
us.

Li
mitati
ons
 Itcannotgi
veanideaofthef
uncti
onoft
heeconomyasawhol e.
 Itassumesful
lemploymentwhichisar
arephenomenonindevel
opi
ng
countri
esorevendevel
opedcount
ri
eswhichi
squit
eunreal
i
sti
c.
I
nt hi
sar
ti
cle,
wear
egoi
ngt
odi
scussv
ari
oust
ermsr
elat
edt
oMi
cro
Economi
cs.

Hereisthelistoftermswear
eaboutt
odi
scussi
nthi
sar
ti
cl
e:
1.BudgetConst rai
nts
2.Choice
3.DemandandSuppl y
4.Uncertai
nties
5.Equil
ibri
um
6.Technicalconstrai
nts
7.Prof
itmaxi mizati
on
8.Costmi nimizati
on
9.Monopol y
10.Oligopoly
11.Product i
on
Budgetconst
rai
nts
Forindi
vi
duals,t hebudgetf
oracquir
ingpropert
ydependsintheearni
ng
capaci
tyofthef amil
yperannum, t
heabi
li
tytorai
sel
oan,sav
ings,
repayi
ng
capaci
ty(i
n5y ear/10year
/15yearl
oanperi
ods).

Choi
ce
Depends on t he budget ar
y capabi
li
ty,savings,wi l
lingness t oi nvest
,
opti
mum l ev
elt o spend,locati
on oft he property etc,choice oft he
specif
icati
ons,reputati
onoft hebuil
ders,qualityofconst ruct
ion,timely
completionofprojects,pr
oximi
tytopubli
cameni tiesli
ket ransport,r
ail
way
stat
ion,air
portetc.

Demandandsuppl
y
Depends on Nati
onali
ncome,fi
nanci
alst
atus oft
he famil
ytoi nv
est,
st
abil
it
yofthejob,l
ocat
ionoft
hepl
aceofworks,
meansoftr
anspor
tati
on.

Suppl
ydependsonthebuil
derswhoarewil
l
ingtoinvesti
nconst
ruct
iont
o
meetthedemandofvar
iouseconomi
clev
elofbuyers.

Uncer
tai
nti
es
Dependsonthestabi
l
ityoftheelect
edgov er
nmentsatst
ate/centr
al,cost
ofl
ivi
ngavai
l
abil
i
tyoflandataff
ordablel
evel,
bui
l
dingmateri
als,av
ail
abili
ty
ofloans atreasonabl
er at
es ofi nterest
,ski
ll
ed and unskil
led labour,
manpower,governmentpoli
cies,naturalcal
ami
ties,r
iots,i
nfl
ati
on,gl obal
economy as wel l as nat
ional economy ,i
mpor t
s/expor
ts,t echnical
knowhow.

Equi
l
ibr
ium
Normall
y,t hi
sf act
or depends on demand and suppl
y which are
i
nter
dependenttomai nt
ainperf
ectequi
li
bri
um,pol
i
ciesi
nfi
veyearplans
andexecut
ionasperscheduledprogr
ams.

Techni
cal
const
rai
nts
Appropri
atet echnol
ogyeitherindigenousl
ydev elopedoracqui r
edf rom
othercountri
es,avai
labi
li
tyoftechnicalexper
ti
sel ikearchi
tects,pl
anner s,
engineer
s,wi ll
i
ng eff
ici
entbuilder
s,innovati
vet echnol
ogyt o bui
ld eco-
fr
iendlybuil
dingsasappropriat
et oourcountryandgl obalwar mingist he
needoft hehour.

Pr
ofi
tmaxi
mizat
ionandcostmi
nimi
zat
ion
Theseaspectsaretobemonitor
edbygovernment
alagenci
esorsomenon
-
gov er
nmentalagenciessothatbui
lder
sdonotmaket oomuchpr ofi
t
taki
ngadvantageofthedemandasi
tishappeni
nginthebuil
dingi
ndust
ry.

Buil
dingindustrycomesunderambitofConsumerProt
ecti
onAct
.Ther
e
shouldbestrictrul
esbysanct
ioni
ngaut
horit
iest
oseethatt
hebui
ldi
ngi
s
construct
edaspersancti
onandspeci
fi
cati
ons.

Monopol
yandOl
i
gopol
y
Inthebui l
dingindust ry,t
her
eisnomonopol y.Theonl ydepar t
menti n
centr
algov er
nment ,whichdoesnothavearchitectsisMi nist
ryofRailways
andAPst ate.Theyar emanagedbyengineersonly .Thereisoli
gopolyinthe
buil
dingindustr
yi .
e.,therear
ereput
edbui l
dersandr eputedpr oducersof
buil
ding who pr oduce quali
ty bui
l
ding mat erials because ofi ntense
competit
ion.

Compet
ingagai
nsteachot
her

Pr
oduct
ion
Thedemandf
orhousi
ngi
sal
way
smor
ethant
hepr
oduct
ionei
theri
n
gover
nmentsectororpr i
vate sect
or.The producti
on i
s occasional
ly
aff
ect
edbyinfl
ati
on,gl
obaleconomicrecessi
on,r
isi
ngcostofli
ving,over
popul
ati
on,
scar
cit
yoflandinmetrosandotherci
ti
es.

Lackofpr
opermasst
ranspor
tat
ion.

Macr
o–Economi
cs
Itdeal
swi thaggregatesandav er
agesofent i
reeconomicslikenati
onal
i
ncome,aggr egateproducts,aggr
egat
eout puts,tot
alemployment,t
ot al
consumpt i
on,savings and inv
est
ments,aggregate demand,aggregate
supply
,generallev
elofpr i
ces.Her
eitalsostudieshow t
heseaggregates
arefl
uctuati
ngandaf f
ecti
ngtheeconomicgr
owt hofthecountr
y.

Macr
oEconomi
csi
sal
socal
l
edI
ncomeTheor
y.
Li
mitati
ons
 Indi
vidual
isal t
ogetheri
gnored.
 Itoverl
ooksi ndiv
idualdif
fer
ences,t
hegener all
evelofpr
icesmaybe
assumed st able,butt he food gr
ains and bui
ldi
ng materi
als and
consumergoodsmaygoupv er
yhighwhi chmaycausehav ocforthe
poorandmi ddleclass.
Concl
usi
on
Accordingt osomeemi nenteconomi st
s,thesubj
ectmatt
erofeconomics
i
ncludes t he Pr
ice Theory(mi cr
o-economics)
,income theor
y( Macr
o-
economi cs), employment t heory
, gr owth theory
. All these are
i
nterdependentoneachot her
.

Gr
ossnat
ional
product
Grossnati
onal product 
(GNP)i sthemar ketval
ueofal lt
heproductsand
servi
cesproducedi noney earbyl aborandpropertysuppli
edbythe
resi
dentsofacount ry.Unl
ike 
Gr ossDomest i
cPr oduct 
(GDP),whi
ch
defi
nesproductionbasedont hegeogr aphi
call
ocat i
onofproducti
on,GNP
all
ocatesproductionbasedonowner shi
p.
GNPdoesnotdi sti
nguishbetweenquali
tati
vei
mpr ovementsinthestateof
thetechnical
art
s(e.g.
,incr
easi
ngcomput erpr
ocessingspeeds),and
quantit
ativei
ncr
easesingoods(e.g.
,numberofcomput er
spr oduced),
and
[
1]
considersbotht
obef ormsof"economicgrowth"
.
Basicall
y,GNPi sthetotalvalueofal lf
inalgoodsandser vicesproduced
withi
nanat i
oninapar t
icularyear,plusincomeear nedbyi tsci
ti
zens
(i
ncludingincomeoft hosel ocat
edabr oad) ,
minusi ncomeofnon- residents
l
ocat edinthatcountry.
GNPmeasur est heval
ueofgoodsandser vi
cest hat
thecount r
y'scit
izensproducedr egardlessoftheirl
ocation.GNPi sone
measur eoft heeconomi cconditi
onofacount ry,
undert heassumpt iont hat
ahigherGNPl eadstoahi gherqualityofliv
ing,al
lotherthingsbeingequal .

Netnat
ional
product

Netnati
onal pr
oduct(NNP)i sthetotalmarketvalueofallf
inalgoodsand
serv
icesproducedbyr esi
dentsinacount r
yorot herpoli
tyduri
ngagi v
en
ti
meper i
od( gr
ossnat i
onalproductorGNP)mi nusdepr eci
ati
on.Thenet
domesticproduct(NDP)istheequi v
alentappli
cationofNNPwi t
hin
macroeconomi cs,andNDPi sequaltogrossdomest i
cproduct(GDP)
minusdepreciati
on:NDP=GDP-depr eci
ati
on.

Depreciat
ion(
alsoknownasconsumptionoff
ixedcapi
tal
)measurest
he
amountofGNPt hatmustbespentonnewcapit
algoodstomai
ntaint
he
exi
stingphysi
calcapi
talst
ock.

NNPistheamountofgoodsi nagivenyearwhichcanbeconsumed
wi
thoutr
educi
ngfutureconsumpti
on.SettingpartofNNPasi
defor
i
nvest
mentpermi
tscapitalst
ockgrowth( seeeconomicgr
owthandcapi
tal
f
ormati
on),
andgreaterfut
ureconsumption.

NNPalsoequal
stotal
compensat
ionofempl
oyees+neti
ndi
rectt
axpai
d
oncur
rentpr
oduct
ion+oper
ati
ngsurpl
us.

DEMANDANDSUPPLY:

Inmicroeconomics, supplyanddemandi saneconomi cmodel ofpr

ice
deter
mi nat
ioninamar ket.I
tconcludesthatinacompet it
ivemarket
,the
uni
tpriceforapar t
iculargoodwi l
lvaryunt i
li
tsettl
esatapointwherethe
quanti
tydemandedbyconsumer s( atcurrentpri
ce)wil
lequalt
hequantit
y
suppli
edbypr oducer s(atcur
rentprice)
,result
inginaneconomi c
equil
i
brium forpri
ceandquant i
ty.
 [
1]
Thef
ourbasi
clawsofsuppl
yanddemandar
e:

1.I
fdemandincreasesandsupplyremainsunchanged, ashortage
occur
s,l
eadingtoahigherequi
li
brium pr
ice.
2.I
fdemanddecr easesandsuppl
yr emainsunchanged,asur plus
occur
s,l
eadingtoalowerequil
i
brium pri
ce.
3.I
fdemandr emainsunchangedandsupplyi ncr
eases,asurplus
occur
s,l
eadingtoalowerequil
i
brium pri
ce.
4.I
fdemandr emainsunchangedandsupplydecr eases,
ashor tage
occur
s,l
eadingtoahigherequi
li
brium pr
ice.

I
nfl
ati
on:

Agener alpr icei ncreaseacrosstheent i

reeconomyi scal ledinf
lation.I
n
economi cs, inflati
oni sariseinthegener allevelofpricesofgoodsand
[
1]
servi
cesi naneconomyov eraper iodoftime.Whent hegener alpr i
celevel
ri
ses,eachuni tofcur r
encybuy sfewergoodsandser v i
ces.Consequent l
y,
i
nflat
ionr eflect sar educti
oninthepur chasi
ngpowerperuni tofmoney–a
l
ossofr eal v aluei nthemedi um ofexchangeanduni tofaccountwi thi
nthe
[2]
[3]
economy . Achi efmeasur eofpr i
ceinfl
ati
onist heinflati
onrate, t
he
annuali
zedper cent agechangeinagener alpri
cei ndex( normall
yt he
[
4]
consumerpr iceindex)ov erti
me.

Infl
ation'
sef fectsonaneconomyar evariousandcanbesi mul
taneously
positi
v eandnegat i
ve.Negat iveef fect
sofi nf
lati
oni ncludeanincreasein
theoppor tunitycostofhol dingmoney ,uncert
aintyov erfut
ureinf
lati
on
whichmaydi scourageinvest mentandsav i
ngs,andi finfl
ati
onisrapid
enough, short agesofgoodsasconsumer sbeginhoar di
ngoutofconcer n
thatpr i
ceswi llincr
easeint hef uture.Positi
veef f
ectsi ncl
udeensuringthat
centralbankscanadj ustreal i
nt erestrates(i
ntendedt omiti
gate
[5]
recessions), andencour agi ngi nv est
menti nnon- monet ar
ycapital
projects.

I
nter
estr
ate
An 
int
erestrate i
sther
ateatwhich i
nterest
 i
spaidbyborr
owersfort
heuse
ofmoneyt hattheybor
rowfrom a 
lender.Speci
fi
cal
ly
,thei
nter
estrat
e(I
/m)
i
saper centofpr i
nci
pal(
P)paidacer t
ainamountoftimes(m)perperi
od
(usuall
yquotedperannum).Forexample, asmallcompanybor rowscapit
al
from abankt obuynew assetsfori
tsbusi ness,andinr et
urnt hel
ender
recei
vesinterestatapredet
erminedinterestratefordeferr
ingtheuseof
fundsandi nsteadlendi
ngittothebor rower.Inter
estratesar enor
mally
expressedasa  per
cent
age 
ofthe 
pri
ncipal 
foraper i
odofoney ear.

Reasonsf
ori
nter
estr
atechanges

 Politi
calshort
-term gain:Lower inginterestr
atescangivet heeconomya
shor t
-r
unboost .Undernor mal condit
ions,mosteconomi ststhi
nkacut
i
nint erestr
ateswi l
lonl ygiv
eashor tterm gaini
neconomi cactivi
tythat
wil
l soonbeof fsetbyi nfl
ati
on.Thequi ckboostcani nf
luenceelect
ions.
Mosteconomi stsadv ocatei ndependentcentralbankstolimitthe
i
nfluenceofpol it
icsoni nterestrates.

 Defer
redconsumption:
Whenmoneyi sloanedthelenderdelay
s
spendingthemoneyon consumpt i
on 
goods.Sinceaccordi
ngto ti
me
pref
erence t
heor
ypeopleprefergoodsnowt ogoodslater,
inafree
markettherewil
lbeapositi
veinter
estrat
e.

 I
nfl
ati
onar
yexpect
ati
ons:Mosteconomiesgeneral
lyexhi
bit
 i
nflation,
meani
ngagivenamountofmoneybuy sfewergoodsinthefutur ethan
i
twil
lnow.Thebor
rowerneedstocompensatethelenderf
orthi s.

 Alter
nati
veinvestments:
Thelenderhasachoicebetweenusinghi
s
moneyi ndif
ferenti
nvest
ment s.I
fhechoosesone,heforgoest
he
ret
urnsfrom allt
heothers.Di
ffer
enti
nvest
mentseffect
ivel
ycompete
forfunds.

 Risksofinvestment:
Ther eisal
way sariskthatthebor
rowerwill
go bankrupt,
abscond,die,orot
herwise 
default
 onthel
oan.Thismeans
thatalendergeneral
lychargesa r
iskpremium toensurethat
,acrosshi
s
i
nv est
ment s,hei
scompensat edforthosethatfail
.

 Liqui
dit
yprefer
ence:
Peoplepr
efertohavetheirr
esour
cesavail
abl
eina
formthatcanimmediat
elybeexchanged,
ratherthanafor
mt hatt
akes
ti
met oreal
ize.

 Taxes:
Becausesomeoft
hegai
nsf
rom i
nter
estmaybesubj
ectt
otaxes,
 t
helendermayi
nsi
stonahi
gherr
atet
omakeupf
ort
hisl
oss.
Empl
oyment
Employment 
i
sar el
ati
onshi
p between two par
ti
es,usual
l
y based on
a 
contr
act,
onebei
ngthe empl
oyer
 andtheotherbei
ngthe 
employ
ee.

Empl
oyee
Anempl oyeecontr
ibut
esl
aborand/
orexpert
isetoanendeavorofan
employerandisusuall
yhi
redt
operfor
m specif
icdut
ieswhichare
packagedintoa 
job.
Empl
oyer
-wor
kerr
elat
ionshi
p
Employ erandmanagerial
contr
ol withinanor gani
zationr
estsatmany
l
ev el
sandhasi mportanti
mpli
cationsf orst affandproducti
vit
yali
ke,wit
h
controlfor
mingthefundamentalli
nkbet weendesi redoutcomesandactual
processes.Employersmustbalancei nterestssuchasdecr easi
ngwage
constraint
swit
hamaxi mi
zat
ionofl abourpr oducti
vit
yinordertoachi
evea
profi
tableandproducti
veemploymentr elati
onship.
Fi
ndi
ngempl
oyeesorempl
oyment
Themai nway s[accordingtowhom?] 
for empl oy er
s tofi
ndwor kersandf orpeople
tofindempl oy ersar ev iajobsl isti
ngsi nnewspaper s( vi
a classified
advertising)andonl ine, alsocal led jobboar ds.Empl oyersandj obseeker s
alsoof tenf i
ndeachot herv i
apr of essional r
ecruitmentconsul t
ant s 
which
receivea  commi ssi on  from t heempl oyertof i
nd,screenandsel ectsui
table
candidat es.Howev er ,ast udyhasshownt hatsuchconsul tantsmaynotbe
reli
ablewhent heyf ai ltouseest ablishedpr inci
plesinsel ecting
[
1]
empl oyees.  Amor et raditional appr oachi switha" HelpWant ed" si
gn 
in
[
2]
theest ablishment( usual l
yhungonawi ndowordoor   orpl acedonast ore
count er)
Wor
kfor
ceor
gani
zi
ng
Employeescanor
ganizeint
otradeor 
laboruni
ons,
whichrepresentt
he
workforcet
ocoll
ect
ivel
ybargainwit
ht hemanagementoforganisat
ions
aboutworki
ngandcontract
ualcondi
ti
ons.

Endi
ngempl
oyment
Usual
l
y,ei
theranempl
oyeeorempl
oyermayendt
her
elat
ionshi
patany
ti
me.Thisisrefer
redt
oas  at
-wil
lemployment.Thecont
ractbet
weent
he
twoparti
esspecifi
est
her esponsi
bil
it
iesofeachwhenendingthe
rel
ati
onshipandmayincluderequir
ementssuchasnot i
ce
peri
ods,
 sever
ancepay,andsecurit
ymeasur es.
Rol
eofSav
ingsandI
nvest
ment
Ther earet wov i
ewsoft het opict i
tledSav i
ngsandI nvestment .Onei s
consider edtoapplytor ealphy sical macroeconomicact i
vity,
the
"Keynesi an",
orNat i
onal Account sv iew.Theotherisconsi deredtoappl yto
moneyandbanki ng,the" Monet ari
st "vi
ew.Theypr i
mar i
lydif
ferslightlyi
n
definit
ionsoft er
ms, whichconsequent lyl
eadt odiff
erentdiscussi ons
aboutv er ydi
ffer
entsubj ectmat ter.Thet wov i
ewsact ual
lyar edifferent
subjectar eas,makingitt hehistoricaldebatediff
icultt
ocol l
ate,letalone
reconcile.
Key nesiansstartwithaccountingdefini
ti
ons, whereSavi
ngs=I nvestment
,
byconst r
ucti
on,andt endtoemphasi zethenonpr oducti
ve(zer
osum)
natureofal lvehi
clesbywhi chsavingsev entual
lyendsupascapi tal
.
Monet aristst
endt ofocusont echnicaldi
st i
ncti
onsofhowsav ingsis
transformedf rom moneybal ances,eventuall
yintocapi
tal,
andemphasi ze
thev alueofthosev ehicl
esinselecti
ngwhi chcapitalt
oinvesti
n.
I
naKey nesi
ansense,savi
ngsiswhateverisleftoverafterincomeisspent
onconsumptionofgoodsandservi
ces,investmentiswhati sspenton
goodsandservicest
hatarenot'
consumed' ,
butar edurable.SinceIncome
=Output,
Savings=Invest
mentforthetotalworld'
seconomy( orfora
hypot
heti
cal'
closed'
economywithzerof or
eigntrade).
InaMonet ari
stsense, savingsisthet otal r
ateatwhichunitsofaccount
exceedexpendi t
ures, andar eaccumul at edasuni tofaccount( e.
g.doll
ar)
balanceswi thfinancial i
ntermediari
es.Orsomet i
meshoar dedascur r
ency.
Invest menti sther ateatwhi chf i
nancial int
ermediari
esandot her sexpend
oni tems  i
ntended  toendupascapi t althatdirect
lycreat
esv alue,i.
e.
phy sicalcapital,durablegoods, humancapi t
al,et
c.Ingeneral,savingsdoes
notequal investment ,butdi ff
erssli
ght l
yatal lti
mes, t
hediff
er ences
const it
utingabehav i
oralrelati
onship,ratherthananaccount ingone, asin
theKey nesianv i
ew.
Thetwovi
ewsarej
ustlooki
ngatver
ydi
ffer
entt
hings.Themostcommonl
y
ref
err
edmeani
ngofthephrase"
Savi
ngsandInv
estment"isi
nfi
rsty
ear
coll
egeeconomics,whereKeynesi
anandneocl
assi
cal
macr
oeconomi
cs
aretaught
,andnati
onalaccounts,
(i.
e.t
hei
dent
it
yY=C+I+G)i s
explai
ned.
Sav
ings
Savi
ngiswhathousehol
ds(i.
e.part
ici
pant
sint
heconsumpt
ionaccount
)
do.Thel
evelofsav
ingintheeconomydependsonanumberoffact
ors
(i
ncomplet
eli
st)
:

 Ahigherr
eali
nter
estr
atewil
lgi
veagr
eat
err
etur
nonsav
ingasbanks
of
fermorefavour
abl
erates.

 Poorreturnsonriskyf
ormsofsaving,
e.g.st
ocksandbonds, makeit
moreadv antageoustoholdmoneysavings(
incontent
ionbetween
KeynesianandMonet ar
istvi
ewshere,mostl
ybecauseofdiff
erencesi
n
def
init
ions).

 Poorexpectati
onforf
utureeconomicgrowth,wagesand/
orj
ob
opport
unit
ieswill
li
kewiseincr
easehouseholds'
savi
ngsasaprecaut
ion
foragri
mf utur
e.

 Mor edisposableincomeaf t
erfi
xedexpendit
ures(suchasmortgage,
heatingbil
l,basicgoodspurchases)havebeenmade( i
ncontenti
on
betweenKey nesi
anandMonet ari
stviewshere,mostl
ybecauseof
di
fferencesindef i
nit
ions)
.

 Perceivedl
ikel
ihoodofplunderofthefut
urev al
ueofsavings,vi
alegal
or
extr
alegalmeans, wil
lmakesav i
nglessat
tracti
ve(i
ncont ent
ion
betweenKey nesianandMonet ar
istvi
ewshere,mostlybecauseof
dif
ferencesindefini
ti
ons)
.
Thesef act
orsaff
ectthemargi
nalpr
opensi
tyt
osav
e( MPS)-t
hegreat
er
thi
sMPS, t
hemor esavi
nghousehol
dswill
doasapropor
ti
onofeach
addit
ionali
ncrementofincome.
I
nvest
ment

 Inv
estmentismadeintocapit
al(
ie.pl
antandmachi
nery
,also'
human
capit
al'
-tr
aini
ngandeducati
on),wit
hint
enttoi
ncr
easeproduct
ivi
ty,
eff
ici
encyandoutputofgoodsandservi
ces
 Innat
ional
account
ingt er
ms, st
ocks,bonds,
mut ualfunds,andot
her
i
temswhosev al
ueisrisky,areNOTi nvestments.Theyfall
intot
he
savi
ngsaccount
,nottheinv estmentaccount.

 Inmonet aryterms,ther elationshipbet weensav i

ngsandi nvest
mentis
model ed,r
atherthanbei nganaccount i
ngi denti
ty.Stocksandbondsar e
consideredtobei mpor tanti ntermediaryf ormsofsav i
ngsasi tgets
transformedintoacapi tal investmentt hatpr oducesv alue.Mutualf
unds,
CDs, BICs,GICs,pensionobl igati
ons,insur anceannuities,andother
formsofsav ingsmar ket edbyf i
nancial i
ntermediaries,allconsi
  st 
of
stocks,bonds,andcashbal ances,whichi nt ur
npayf ort hecapit
alt
hat
increasesproductiv
ity
, efficiencyandout putofgoodsandser vi
ces.
The2For msofI nvestment
a)
 vol
unt
ary

 nor
mal
inv
est
ment→ pl
antequi
pmentet
c.
b)
 i
nvol
unt
ary

 st
ockpi
l
esori
nvent
ori
es,
out
putnotconsumed.

Monet
aryeconomi
cs
Monet aryeconomi cs i
sabr anchof  
economi cs t
hathi stori
call
yprefi
gured
[
1]
andr emainsi ntegral
lyl i
nkedt o  macroeconomi cs.  Monet aryeconomics
providesaf ramewor kforanal y zi
ng money  
ini t
sfunct ionsasa medium of
exchange, storeofv alue,and  unitofaccount .Itconsi dershowmoney ,
for
exampl e 
fi
atcur r
ency ,cangai naccept ancepur elybecauseofi t
s
[2]
conv eni
enceasa  publicgood.  Itexami nest heeffect sof 
monet ar
y
systems, i
ncludingr egulationofmoneyandassoci ated fi
nanci
al
[3]
i
nstituti
ons   andinternational aspect s.
Modernanaly sishasat tempt edtopr ovi
dea micro-based formulat i
onof
[5]
the 
demandf ormoney   andt odisti
nguishvali
d nominal andreal monetary
rel
ati
onshipsf ormicroormacr ouses,incl
udingtheirinfl
uenceon
[
6]
the 
aggregatedemand  forout put
.  It
smet hodsincludeder i
vingand
test
ingtheimpl i
cationsofmoneyasasubst it
uteforot herassets[7] 
andas
[8]
basedonexpl icitf
ri
ctions.
Resear
char
eashav
eincl
uded:

 empir
ical
 deter
minantsandmeasurementofthe 
moneysuppl
y,whether
[
9]
nar
rowly-
,broadly
-,ori
ndex-
aggr
egated,
inrel
ati
ontoeconomi
cactiv
ity

 debt -
def l
ation 
and balance-sheet 
theor
ies,whichhypothesizet hatov
er-
extensi onofcr edi
tassoci atedwithasubsequentasset -
pri
cef all
gener atebusinessfluctuations 
thr
ought he 
wealtheffect
 on net
[
10]
wor th.   andtherelati
onshi pbetweenthe demandf oroutput and
[
11]
the demandf ormoney

 monet
aryi
mpl
i
cat
ionsoft
heasset
-pr
ice/
macr
oeconomi
crel
aton[12]
i
[
13] [14]
 the 
quantit
ytheor
yofmoney ,  monetari
sm,  andtheimpor tanceand
stabi
li
tyoftherel
ati
onbetweent hemoneysuppl yandint
erestr ates,
[15]
thepr
icelevel
,andnominalandr ealout
putofan  economy.

 monetaryi
mpact
soni
nter
estr
atesandt
he 
ter
m st
ruct
ureofi
nter
est
[
16]
r
ates
[
17]
 l
essonsofmonet
ary
/fi
nanci
alhi
stor
y

 t
ransmissi
onmechani
smsof
 monet
arypol
i
cy 
ast
othe
[18]
macroeconomy
[19]
 t
hemonet
ary
/fi
scal
pol
i
cy 
rel
ati
onshi
ptomacr
oeconomi
cst
abi
l
ity

 neutr
ali
tyofmoney 
vs. 
moneyil
lusi
on astoachangei
nthemoney
[
20]
suppl
y,pri
celev
el,
orinfl
ati
ononoutput

 test
s,test
abi
li
ty,andi
mplicati
onsof
 r
ati
onal-
expect
ations 
theor
yast
o
[
21]
changesinoutputori
nfl
ationfr
om monetar
ypoli
cy

 monetaryimpli
cat
ionsofi
mper
fectand 
asy
mmet
ri
cinf
ormat
ion[22] 
and
[
23]
f
raudulentf
inance

 gametheory asamodel
i
ngpar
adi
gm f
ormonet
aryandf
inanci
al
[
24]
i
nsti
tut
ions
[
25]
 t
he 
pol
i
tical
economy
 of
 f
inanci
alr
egul
ati
on 
andmonet
arypol
i
cy
 possi
bleadvant
agesoffoll
owingamonet
ar y
-poli
cy r
ule 
toavoid
[
26]
i
neffi
cienci
esof
 t
imeinconsist
ency
 fr
om 
discret
ionarypoli
cy

 "
any
thi
ngt
hat
 cent
ral
banker
s shoul
dbei
nter
est
edi
n."