Principles of Macroeconomics – Finance saving and investment (lecture 5.2)

Principles of Macroeconomics – Finance Saving and Investment (lecture 5.2)
National Savings
Y= C + I + G + X – M
Y – C – G = I + X – M
As S + T = Y – C
S + T – G = I + X + M, where S is private sector savings and T – G is government savings.
NS = I + X – M
With foreign savings:
X – M = KO – KI, where KO is capital outflow which is Australian savings moving overseas and KI
is capital inflow which is foreign savings moving into Australia.
If X < M then KO < KI, where the spending is greater than the savings, which Australia is as
Australia is a deflect account. Australia is relying on foreign savings. Australia will have faster
growth with foreign investment due to better technology and capital.
However, foreign countries expect a return, so are we better off? Both parties can benefit, thus being a
win-win situation.

The market for loanable funds
• An increase in the expected profit in the future by firms will lend to greater
investment and a shift of the DLF curve.