economic growth:business cycle

Potential gdp level of real gdp attained when all

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Potential GDP= level of real GDP attained when all firms are producing at capacity Saving, Investment and the Financial System Financial system= system of financial markets & financial intermediaries through which firms acquire funds from H Financial markets = markets where financial securities, such as stocks and bonds are bought and sold . Security = a document that states the terms under which funds pass from buyer of security who is providing funds to the seller Stocks= partial ownership of firms Bonds= promises to repay a fixed amount of funds Financial intermediaries= firms, such as banks , mutual and insurance companies borrow funds from savers and lend them to borrowe Financial system offers 3 key services for savers and borrowers - risk is the chance that the value of a financial security will change relative to what u expect - liquidity is the ease with which a financial security can be exchanged for money - information or facts about borrowers and expectation about returns Macroeconomics of Saving and Investment In a closed economy no trading Y = C+I+G I = Y-C-G Private saving (Sprivate) = Y+TR-C-T (income after paying tax and consuming) Public saving(Spublic) = T-G-TR Total saving is S= Sprivate + Spublic S = Y+TR-C-T +(T-G-TR)
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