Transcript Ch 25 Saving, Investment and the Financial System

Ch 25 Saving, Investment and the Financial
System
 *p. 553-559 - review of financial terms learned in
Micro stock market lessons
I. Saving and Investments in the National
Income Accounts
*assume a closed economy for now Y = C+I+G (Income
= Expenditures)
 Subtract Consumption and Government from both
sides
Y-C-G = I
 Y-C-G : tells us our income (Y) after we paid for C and
G….so this is National Savings (S)
 …..so Y-C-G = I ……= ……S = I
*think back to AE model ….at Equilibrium , S = I
 …so National Savings = …. S = Y-C-G
 If S = I : how is this coordinated in the economy?????
 THE FINANCIAL SYSTEM TAKES IN A NATION’S
SAVINGS AND DIRECTS IT TO THE NATION’S
INVESTMENTS (p.563)
National Savings is separated into Private and
Public
 *must consider taxes
 Private Income (Y) must subtract private Taxes (T)
and private Consumption ( C )
….so Private Savings = Y-T-C
 Public Income consists of Tax revenue (T) and subtract
Government spending (G)
…so Public Savings = T-G
National Savings = Private Savings + Public Savings
S = ( Y-T-C) + (T-G)
II. Meaning of Saving and Investment
 ***specific use of terms***
III. Market For Loanable Funds
?
Supply Curve:
The Supply of What?
Demand Curve:
The Demand of What?
?
 Supply =
 Savings ….comes from ….
 People have extra income and lend it out
 Examples…
 Savings accounts, buy bonds
 Demand=
 Investment….comes from..
 Households and firms want to borrow to invest
 Examples…
 Home mortgages, firms buy new equipment, factories
 Interest Rates = price of borrowing
 High int rates = Borrowing is….
 more expensive =
 D falls =
 Downward sloping
 High interest rates = Savings is….
 More incentive =
 S increases =
 Upward sloping
Examine Govt. policies that affect
SAVING (S) AND INVESTMENT (D)
Three steps:
1. Shift S or D
2. Direction of shift
3. Evaluate new equilibrium