05+Saving+and+Investment%2C+Part+1

05+Saving+and+Investment%2C+Part+1 - 1 5-1 Saving and...

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Unformatted text preview: 1 5-1 Saving and Investment in Closed and Open Economies, Part 1 5-2 Agenda 1. Saving and Wealth 2. Saving and Investment 5-3 Saving and Wealth • Saving = current income – current spending • National saving consists of: 1. Private saving, S P , and 2. Government saving, S G . • Saving is a flow variable. 5-4 Saving and Wealth 1. Private saving, S P , is given by: S P = Y – T – C • where: a. S P = Private saving, b. Y = Real GDP, c. T = Net taxes (tax revenues minus transfer and interest payments), and d. C = Consumption. 2 5-5 Saving and Wealth • The private saving rate is given by: S P / ( Y – T ) * 100 • where: a. S P = Private saving, b. Y = Real GDP, and c. T = Net taxes (tax revenues minus transfer and interest payments). 5-6 Saving and Wealth Private Saving Rate Percent of GDP 10 05 00 95 90 85 80 75 70 65 60 55 Source: Haver Analytics 15 10 5 15 10 5 5-7 Saving and Wealth 2. Government saving, S G , is given by: S G = T – G C ≈ T – G • where: a. S G = government saving, b. T = Net taxes (tax revenues minus transfer and interest payments), c. G C = Government consumption purchases, and d. G = Total government purchases. 5-8 Saving and Wealth • Government saving, T – G, also reflects the government’s budget balance . 1. When T – G > 0, there is a budget surplus. 2. When T – G < 0, there is a budget deficit. • Government dissaving 3 5-9 Saving and Wealth • The government saving rate is given by: S G / Y * 100 • where: a. S G = Government saving, and b. Y = Real GDP. 5-10 Saving and Wealth Government Saving Rate Percent of GDP 10 05 00 95 90 85 80 75 70 65 60 55 Source: Haver Analytics 8 4-4-8-12 8 4-4-8-12 5-11 Saving and Wealth • National saving, S, is given by: S = S P + S G • or S = Y – C – G 5-12 Saving and Wealth...
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This note was uploaded on 10/18/2011 for the course ECON 100B taught by Professor Wood during the Fall '08 term at Berkeley.

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05+Saving+and+Investment%2C+Part+1 - 1 5-1 Saving and...

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