554 PART NINE THE REAL ECONOMY IN THE LONG RUN There are various ways for you to finance these capital investments. You could borrow the money, perhaps from a bank or from a friend or relative. In this case, you would promise not only to return the money at a later date but also to pay in-terest for the use of the money. Alternatively, you could convince someone to pro-vide the money you need for your business in exchange for a share of your future profits, whatever they might happen to be. In either case, your invest-ment in computers and office equipment is being financed by someone else’s saving. The financial system consists of those institutions in the economy that help to match one person’s saving with another person’s investment. As we discussed in the previous chapter, saving and investment are key ingredients to long-run economic growth: When a country saves a large portion of its GDP, more resources are available for investment in capital, and higher capital raises a country’s
This is the end of the preview. Sign up
access the rest of the document.
This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.