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Chapter 8 - Chapter 10 Savings Investment and the Financial...

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Chapter 10 – Savings, Investment and the Financial Sector Motivation – Y/L = f(K/L, H/L,T) Increases in K/L result in increased productivity and increased income. Investment Spending (I) in the economy is what results in greater capital. Businesses get their money for investment spending from Savings. Financial Sector plays an important role in transferring savings to Investments spending. SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM 2 Financial Institutions The financial system : the group of institutions that helps match the __________of one person with the _________ of another. Financial markets : institutions through which savers can __________ provide funds to borrowers. Examples: The Bond Market. A bond is a certificate of ____________. The Stock Market. A stock is a claim to ______________in a firm.
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SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM 3 Financial Institutions Financial intermediaries : institutions through which savers can _________provide funds to borrowers. Examples: _________________ ______________– institutions that sell shares to the public and use the proceeds to buy portfolios of stocks and bonds SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM 4 Different Kinds of Saving Private saving = The portion of households’ income that is not used for __________or paying ______. Sp= Public saving = Sg=
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SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM 5 National Saving National saving = = = = the portion of national income that is not used for consumption or government purchases SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM 6 Saving and Investment Recall the national income accounting identity: Y C I G NX For the rest of this chapter, focus on the closed economy case: Y C I G Solve for I : I = = ______= ________ in a closed economy
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SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM 7 Budget Deficits and Surpluses Budget surplus =
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