Close Economy

Close Economy - G ) = Y C G = the portion of national...

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1 Topic 1 Closed Economy: Saving & Investment
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2 Different Kinds of Saving Private saving = The portion of households’ income that is not used for consumption or paying taxes = Y T C Examples of what households do with saving: Buy corporate bonds or equities Purchase a certificate of deposit at the bank Buy shares of a mutual fund Let accumulate in saving or checking accounts
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3 Different Kinds of Saving Public saving = Tax revenue less government spending = T G
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4 Budget Deficits & Surpluses Budget surplus = an excess of tax revenue over govt spending = T > G = public saving Budget deficit = a shortfall of tax revenue from govt spending = T < G = – (public saving)
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5 National Saving National saving = private saving + public saving = ( Y T C ) + ( T
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Unformatted text preview: G ) = Y C G = the portion of national income that is not used for consumption or government purchases 6 Saving and Investment Recall the national income accounting identity: Y = C + I + G + NX Focusing on the closed economy case: Y = C + I + G Solving for I : I = Y C G = ( Y T C ) + ( T G ) = S Saving = investment in a closed economy national saving 7 The Meaning of Investment Investment is the purchase of new capital. Examples of investment: General Motors spends $250 million to build a new factory in Flint, Michigan. You buy $5000 worth of computer equipment for your business. Your parents spend $300,000 to have a new house built. Remember: In economics, investment is NOT the purchase of stocks and bonds!...
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This note was uploaded on 02/28/2011 for the course ECON 011 taught by Professor Yezer during the Spring '07 term at GWU.

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Close Economy - G ) = Y C G = the portion of national...

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