01:220:103 Lecture Notes - Lecture 4: Consumption Smoothing, Capital Accumulation, Market Price
28 Aug 2016
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Document Summary
Chapter 9: saving, investment, and the financial system. The more capital an economy can invest, the greater is gdp per capita. Connecting savers and borrowers increases the gains from trade and smoothens economic growth. Savings: income that is not spent on consumption goods and services, mobilized and transformed into investment, investment rate = savings rate = y. Investment: the purchase of capital, including tools, machinery, and factories, capital accumulation leads to increases in gdp (maintenance at or above steady- state) Stocks and other investments: a transfer of ownership from one entity to another, does not qualify as an economic investment b/c new capital is not purchased. Smoothing consumption- flatter (smoother) line on graph: positive relationship with savings supply, leads people to save for retirement. Allows for consumption when income is low or nonexistent. Allows for unexpected expenditures due to sickness, natural disasters, etc: saving during the working years and dissaving during the retirement years.
