Ch 25 Saving, Investment and the Financial System

*p. 553-559 - review of financial terms learned in Micro stock market lessons

I. Saving and Investments in the National Income Accounts

*assume a closed economy for now Y = C+I+G (Income = Expenditures)

Subtract Consumption and Government from both sides

Y-C-G = I Y-C-G : tells us our income (Y) after we paid

for C and G….so this is National Savings (S) …..so Y-C-G = I ……= ……S = I *think back to AE model ….at Equilibrium , S = I…so National Savings = …. S = Y-C-G

If S = I : how is this coordinated in the economy?????

 

THE FINANCIAL SYSTEM TAKES IN A NATION’S SAVINGS AND DIRECTS IT TO THE NATION’S INVESTMENTS (p.563)

National Savings is separated into Private and Public*must consider taxesPrivate Income (Y) must subtract private

Taxes (T) and private Consumption ( C )….so Private Savings = Y-T-C

 Public Income consists of Tax revenue (T) and

subtract Government spending (G) …so Public Savings = T-G

National Savings = Private Savings + Public Savings

S = ( Y-T-C) + (T-G)

II. Meaning of Saving and Investment

***specific use of terms*** 

III. Market For Loanable FundsSupply Curve:

The Supply of What? ?

?

Demand Curve: The Demand of

What?