Chapter 9

Chapter 9 - Chapter 9: Saving and Capital Formation A....

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Chapter 9: Saving and Capital Formation A. Saving and Investment: Introductory Comments 1. Physical Capital and Economic Growth a. Physical capital is very expensive 2. Saving = Lending; Investment = Borrowing a. Finance the purchase of physical capital b. Buying physical capital involves credit c. Lending- giving up money today to get more in the future i) Bonds, stocks, and even having a checking account are all lending (it is still lending, even if it is to the bank) d. In the credit market, borrowers and lenders are buyers and sellers 3. Real Interest Rates = Real cost of borrowing and lending a. It is most advantageous to borrow at the lowest real interest rate and lend at the highest real interest rate 4. Goal: Model of Real Interest Rate Determination 5. Stock and Flow Variables a. Economists talk about two basic categories of variables: stock and flow variables b. Key to understanding the distinction between these two: TIME i) If we freeze time, can we measure the variable? If yes, it is a stock variable If no, it is a flow variable 1
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Chapter 9: Saving and Capital Formation c. Distinguishing/Defining i) Stock variable- if we could freeze time, we could
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This note was uploaded on 04/15/2008 for the course ECON 2010 taught by Professor Roussel during the Spring '08 term at LSU.

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Chapter 9 - Chapter 9: Saving and Capital Formation A....

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