Principles of Economics- Mankiw (5th) 546

Principles of Economics- Mankiw (5th) 546 - 564 PA R T N I...

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564 PART NINE THE REAL ECONOMY IN THE LONG RUN Curly Corporation sells some stock and uses the proceeds to build a new factory, it also adds to the nation’s investment. Although the accounting identity S ± I shows that saving and investment are equal for the economy as a whole, this does not have to be true for every individ- ual household or firm. Larry’s saving can be greater than his investment, and he can deposit the excess in a bank. Moe’s saving can be less than his investment, and he can borrow the shortfall from a bank. Banks and other financial institutions make these individual differences between saving and investment possible by al- lowing one person’s saving to finance another person’s investment. QUICK QUIZ: Define private saving, public saving, national saving, and investment. How are they related? THE MARKET FOR LOANABLE FUNDS Having discussed some of the important financial institutions in our economy and the macroeconomic role of these institutions, we are ready to build a model of fi-
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