Transcript Document

CHAPTER
Analysis of the Financial
System and the Economy
Copyright © 2003 by South-Western/Thomson Learning. All rights reserved.
4
Financial Statement of J. P. Young, January 1,
2002 through December 31, 2002
Expenditures (Uses)
Consumption
(spending on goods and services)
Saving
(acquisition of summer home)
(acquisition of financial claims)
Consumption plus saving
Copyright © 2003 by South-Western/Thomson Learning. All rights reserved.
Receipts (Sources)
$44,000
$ 8,000
$ 5,000
$ 3,000
$52,000
Wages and salaries
Dividends
$47,000
$ 3,000
Interest
Rent
Disposable income
$ 2,000
$
0
$52,000
Financial Statement of All Purpose Enterprise
Inc., January 1, 2002 through December 2002
(in Millions of Dollars)
(A)
Total expenses
Wages and salaries
Interest on debt
Cost of raw materials purchased
from other firms
$ 5,400
5,700
200
(B)
Net income (sales – expenses)
minus dividends
equals retained earnings
$ 500
300
$ 200
(C)
Business investment spending
Financing: (new capital goods– plant and
equipment—and/or additions to
inventories
$ 500
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Total sales
$5,900
500
Financing:
New bonds issued
Retained earnings
$300
200
$500
National Income and Expenditures for Our
Hypothetical Economy, 2001 (in Billions of
Dollars)
Sector
Income
Expenditures
Households
Disposable personal
income
$5,200
Consumption expenditures
Investment expenditures
Business firms
Retained earnings $200
Investment expenditures
Economy
National income $5,400
Domestic product
Copyright © 2003 by South-Western/Thomson Learning. All rights reserved.
Income –
Expenditures
= Deficit or
Surplus
$4,400
$500
$500
$5,400
Surplus
$300
Deficit
- $300
The Circular Flow Diagram
Money Flows from Households to Firms to Pay for Goods and Services
PRODUCT MARKETS
Products Flow from Firms to Households
AS
Price
Index
AD
Real GDP
Surplus Funds Flow from SSUs to DSUs
HOUSEHOLDS
FINANCIAL MARKETS
Supply
Interest
Rate
Demand
Loanable Funds
Supply
Wages
Demand
Labor
Labor and Other Factors Flow from Households to Firms
FACTOR MARKETS
Factor Payments (Wages, etc.) Flow from Firms to Households
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FIRMS
The Product Market: Aggregate
Demand and Aggregate Supply.
Price
Index
AS
1.0
A
AD
$5,400
Real GDP (in Billions)
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The Factor Market: The Demand
for and Supply of Labor
Wage Rate/
Hour
S
$23.50
B
D
200
Labor Hours (in Billions)
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The Financial System: The Demand for
and Supply of Loanable Funds
Interest
Rate
(Percent)
S
4
C
D
$300
Loanable Funds (in Billions)
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Goals of Various Spending Units
Households
Maximize Utility
(Satisfaction)
Firms
Maximize Profits
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