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11-13 lecture notes

# 11-13 lecture notes - government and foreigners and are...

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GNP is the market value of the output produced by the nationals of a country, they make by living within the country or abroad GDP=GNP- Income earned by Americans abroad+ Income earned by foreigners in the US NDP (net domestic product) can be calculated by the GDP- depreciation in value NDP- IBT=National Income=national domestic product NI- corporate profit taxes- social security contributions+ transfer payments= personal income PI- direct income taxes= disposable personal income Disposable personal income= Y-T= C+S (consumed or saved) Disposable personal income= C+I C+I=C+S, therefore, the country can only invest what it saves National savings= (Y-T-C) + (Y-G)= (Y-C-G) Physical capital can be increased by investing, which requires savings More savings available equates to more investment opportunity but not necessarily more investments The demand for loanable funds comes both from investors, consumers,
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Unformatted text preview: government, and foreigners and are influenced by the interest rate to determine the demand, it is an inverse relationship • Suppliers are the savers (households, corporations and government) • Corporate savings are comprised of retained earnings which are comprised of the net earnings of the corporation minus the dividends they have paid out • Where the two intersect creates the equilibrium funds supplied at the interest rate which creates a price of borrowed money • PV= FVx 1/(1+i)^n is the formula for present value of future dollars • Example- FV= 20,000 at end of 5 years, i=10% per year, PV= 20,000x 1/(1+.1)^5 PV= 12,418.43 • Therefore, the value of this 20,000 in future dollars is 12,418.43 in current dollars • Same investment that we have rejected today becomes more desirable if interest rate goes down because the present value of the income from investment will become larger...
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