Textbook Notes (368,432)
Canada (161,877)
Economics (923)
ECN 204 (282)
Eric Kam (28)
Chapter 8

Chapter 8 - Saving, Investment & Financial System
Premium

3 Pages
122 Views
Unlock Document

Department
Economics
Course
ECN 204
Professor
Eric Kam
Semester
Winter

Description
Wednesday February 15 , 2012 Chapter 8 Saving, Investment, and the Financial System Financial Institutions: -The financial system: the group of institutions that helps matches 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 -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 Saving and Investment in the National Income Accounts: -Recall that GDP is both total income in an economy and total expenditure on the economy’s output of goods and services:  Y = C + I + G + NX  In a closed economy:  Y = C + I + G Different Kinds of Saving: -Private saving  =The portion of households’ income that is not used for consumption or paying taxes  =Y – T – C  measure of income is “disposable income,” or gross income minus taxes (“take-home pay”)  the measure of expenditure is consumption -Public saving  =Tax revenue less government spending  =T – G  the measure of income is T, total taxes, which is the government’s source of “income”  the measure of expenditure is simply G, government purchases 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 Saving and Investment: -national income accounting identity:  Y = C + I + G + NX -For the rest of this chapter, focus on the closed economy case: Wednesday February 15 , 2012  Y = C + I + G Budget Deficits and Surpluses: -Budget Surplus  = an excess of tax revenue over government spending  = T – G  = public saving Budget Deficit:  a shortfall of tax revenue from government spending  = G – T  = – (public saving) The Meaning of Saving and Investment: -Private saving: is the income remaining after households pay their taxes and pay for consumption -Examples of what households do with saving:  Buy corporate bonds or equities  Purchase a certificate of deposit at the bank  Buy shares of a mutual fund  Let accumulate in saving or checking accounts The Meaning of Saving and Investment: -Investment: is the purchase of new capital -Examples:  Research in Motion spends $250 million to build a new R&D centre in Waterloo, Ontario  You buy $5000 worth of computer equipment for your business  Your parents spend $300,000 to have a new house built -In economics, investment is NOT the purchase of stocks and bonds! The Market for Loan-able Funds: -A supply-demand model of the financi
More Less

Related notes for ECN 204

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit