Macroeconomics.docx - Macroeconomics: L7C10 Private...

Macroeconomics: L7C10
Private investment spending is paid for by individuals and firms (COUNTINUE)
Savings-investment spending identity: savings and investment spending are always equal for the
economy as a whole
S=I, in a closed economy
2.) Closed Economy
GDP= C+G+I
Individual income: C+S
Economy’s income: C +S (C+G)
-S= savings
-C= consumer spending
-G= government spending
-Sn= national savings
3.) GDP= (C+G)/C+G+Sn
4.) Sn=GDP-C-G
5.) Sn=I
National savings= Private savings + public savings
6.) -Spr= GDP-C-T+TR
7.) -Spu= budget balance= T-TR – G (T-TR= net taxes)
-surplus= revenue > expenditure = net taxes> G
-deficit= revenue < expenditure = net taxes < G
-Spr=private savings
-Spu= public savings
-TR= transfers
-T=taxes
Sn= (GDP-C-T+TR)+(T-TR-G)
8.) Sn= GDP-C-G
Net foreign investment: is the total outflow of funds out of a country minus the total flow of
funds into a country.
-NFI=outflow of funds - inflow of funds
Net exports= X-M
1.) X<M -> NFI -ve? (NEGATIVE)
2.) X>M -> NFI +ve? (POSITIVE)
9.) GDP=C+I+G+X-M
10.) GDP-C-G=I+X-M

11.) Sn= I+NFI
Financial markets: channel the savings of households to businesses that want to borrow in order
to purchase capital equipment
Price of loanable funds-> interest rate-> nominal interest value
The interest rate is the price of borrowing funds, firms borrow more when the interest rate falls