Ch%2013 - 13 SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
231 LEARNING OBJECTIVES: By the end of this chapter, students should understand: some of the important financial institutions in the U.S. economy. how the financial system is related to key macroeconomic variables. the model of the supply and demand for loanable funds in financial markets. how to use the loanable-funds model to analyze various government policies. how government budget deficits affect the U.S. economy. CONTEXT AND PURPOSE: The purpose of Chapter 13 is to show how saving and investment are coordinated by the loanable funds market. Within the framework of the loanable funds market, we are able to see the effects of taxes and government deficits on saving, investment, the accumulation of capital, and ultimately, the growth rate of output. KEY POINTS: The U.S. financial system is made up of many types of financial institutions, such as the bond market, the stock market, banks, and mutual funds. All of these institutions act to direct the resources of households that want to save some of their income into the hands of households and firms who want to borrow. National income accounting identities reveal some important relationships among macroeconomic variables. In particular, for a closed economy, national saving must equal investment. Financial institutions are the mechanism through which the economy matches one person’s saving with another person’s investment. The interest rate is determined by the supply and demand for loanable funds. The supply of loanable funds comes from households who want to save some of their income and lend it out. The demand for loanable funds comes from households and firms who want to borrow for investment. To analyze how any policy or event affects the interest rate, one must consider how it affects the supply and demand for loanable funds. 13 SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
232 Chapter 13/Saving, Investment, and the Financial System National saving equals private saving plus public saving. A government budget deficit represents negative public saving and, therefore, reduces national saving and the supply of loanable funds available to finance investment. When a government budget deficit crowds out investment, it reduces the growth of productivity and GDP. CHAPTER OUTLINE: I. Definition of financial system : the group of institutions in the economy that help to match one person’s saving with another person’s investment . II. Financial Institutions in the U.S. Economy A. Financial Markets 1. Definition of financial markets : financial institutions through which savers can directly provide funds to borrowers . 2. The Bond Market a. Definition of bond : a certificate of indebtedness . b. A bond identifies the date of maturity and the rate of interest that will be paid
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/07/2010 for the course ECONOMICS 212 taught by Professor Gaminde during the Spring '10 term at University of Miami.

Page1 / 8

Ch%2013 - 13 SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online