Ch.20_Saving_Capital_Financial

Ch.20_Saving_Capital_Financial - Ch. 20. Saving, Capital...

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1 Ch. 20. Saving, Capital Formation, and Financial Markets I. Overview We will look at household decisions on saving, aggregate saving and how that feeds into investment and capital formation. We will link consumption, saving, investment and interest rates
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2 A. Definitions: Saving = current income – spending on current needs Saving rate = saving/current income II. Saving & Wealth
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3 Household Saving Rate
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4 B. Wealth Definition: Net Worth = Assets - liabilities We can describe net worth using a balance sheet Assets Liabilities Cash $1,000 Mortgage $400,000 Stocks $5,000 Credit Card $10,000 House $500,000 Car $ 6,000 Total assets $512,000 Total liabilities$410,000
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5 C. Relationship between Saving and Wealth Saving is a flow Wealth is a stock
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6 C. Relationship between Saving and Wealth - continued
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7 Household Net Worth
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8 A. Measuring National Saving Recall that Y = C + I + G + NX First take the case of a closed economy, so NX = 0 and Y = C + I + G. III. National Saving and Its Components
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9 National Saving Rate ((Y-C-G)/Y) 5 10 15 20 percent 1950 1960 1970 1980 1990 2000 2010 year
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Ch.20_Saving_Capital_Financial - Ch. 20. Saving, Capital...

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