L11 Econ 1021 Lecture Notes - Lecture 5: Opportunity Cost, Financial Intermediary, Marginal Product

51 views6 pages

oliveleopard31

17 Aug 2016

School

WUSTL

Department

University College - Economics

Course

L11 Econ 1021

Professor

Bandyopadhyay Sudeshna

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

National saving determines the capacity of an economy to create new capital. Saving: current income - spending on current needs. Financial: cash, a checking account, stocks, bonds, etc. Real: home, real estate, jewelry, consumer durables, etc. Balance sheet: a list of an economic unit"s assets and liabilities on a specific date. Flow: a measure that is defined per unit of time. Stock: a measure that is defined at a point in time. The flow of savings causes the stock of wealth to change at the same rate. Capital gains: increases in the value of existing assets. Capital losses: decreases in the value of existing assets. Change in wealth = saving + capital gains - capital losses. In the 1990s, capital gains increased household wealth by so much that people saw no need to save. National saving is the aggregate saving of the economy. Includes saving of business firms, government, and households.

Related Questions

A consumer is making saving plans for this year and next. She knows that her real income after taxes will be $50,000 in both years. Any part of her income saved this year will earn a real interest rate of 10% between this year and next year. Currently, the consumer has no wealth (no money in the bank or other financial assets, and no debts). There is no uncertainty about the future.

The consumer wants to save an amount this year that will allow her to (1) make college tuition payments next year equal to $12,600 in real terms; (2) enjoy exactly the same amount of consumption this year and next year, not counting tuition payments as part of next year's consumption; and (3) have neither asserts nor debts at the end of next year.

a. How much should the consumer save this year? How much should she consume? How are the amounts that the consumer should save and consume affected by each of the following changes (taken one at a time, with other variables held at their original values)?

b. Her current income rises from $50,000 to $54,200.

c. The income she expects to receive next year rises from $50,000 to $54,200.

d. During the current year she receives an inheritance of $1050 (an increase in wealth, not income).

e. The expected tuition payment for next year rises from $12,600 to $14,700.

f. The real interest rate rises form 10% to 25%.

L11 Econ 1021 Lecture Notes - Lecture 5: Opportunity Cost, Financial Intermediary, Marginal Product

Document Summary

Get access

Related Documents

L11 Econ 1021 Study Guide - Midterm Guide: Consumption Function, G2 Phase, Online Banking

L11 Econ 1021 Chapter Notes - Chapter 8: Loanable Funds, Nominal Interest Rate, Negative Number

L11 Econ 1021 Chapter Notes - Chapter 8: Risk Premium, Opportunity Cost, Credit Risk

Related Questions