Chapter 13 PowerPoint

Chapter 13 PowerPoint - Chapter 13 Saving Investment and...

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1 CHAPTER 13 SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM Chapter 13. Saving, Investment, and the  Financial System In this chapter, look for the answers to these questions: - What are the main types of financial institutions in the U.S. economy, and what is their function? - What are the three kinds of saving? - What’s the difference between saving and investment? - How does the financial system coordinate saving and investment? - How do govt policies affect saving, investment, and the interest rate?
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2 CHAPTER 13 SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM Financial Institutions The financial system : the group of institutions that helps match the saving of one person with the investment of another. Financial markets : institutions through which savers can directly provide funds to borrowers. Examples: The Bond Market. A bond is a certificate of indebtedness. The Stock Market. A stock is a claim to partial ownership in a firm.
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3 CHAPTER 13 SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM Financial Institutions Financial intermediaries : institutions through which savers can indirectly provide funds to borrowers. Examples: Banks Mutual funds –  institutions that sell shares to the public and use the proceeds to buy portfolios of stocks and bonds
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4 CHAPTER 13 SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM Different Kinds of Saving Private saving = The portion of households’ income that is not used for consumption or paying taxes = Y  –  T  –  C Public saving = Tax revenue less government spending = T  –  G   
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5 CHAPTER 13 SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM National Saving National saving = private saving + public saving = ( Y  –  T  –  C )  +    ( T  –  G ) =    Y   –   C   –   G = the portion of national income that is not used for consumption or government purchases
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6 CHAPTER 13 SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM 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   =   Y  –  –  G =  ( Y  –  T  –  C ) + ( T  –  G ) Saving = investment in a closed economy national saving
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7 CHAPTER 13 SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM Budget Deficits and 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 = G  –  T    = – ( public saving)
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A     C C     T T     I I     V V     E  L E  L     E E     A A     R R     N N     I I     N N     G   G   1 1 :    :    Exercise Exercise Suppose GDP equals $10 trillion, consumption equals $6.5 trillion, the government spends $2 trillion and has a budget deficit of $300 billion. Find public saving, taxes, private saving,
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Chapter 13 PowerPoint - Chapter 13 Saving Investment and...

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