New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

EC 111, Week 6 Notes

by: Matt Cutler

EC 111, Week 6 Notes Econ 111

Matt Cutler
GPA 4.0

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

These are the notes on Financial Institutions
Kent 0. Zirlott
Class Notes
25 ?




Popular in Macroeconomics

Popular in Department

This 3 page Class Notes was uploaded by Matt Cutler on Friday February 26, 2016. The Class Notes belongs to Econ 111 at University of Alabama - Tuscaloosa taught by Kent 0. Zirlott in Fall 2016. Since its upload, it has received 26 views.


Reviews for EC 111, Week 6 Notes


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 02/26/16
Financial Institutions Wednesday, February 24, 2016 3:49 PM • The financial system: the group of institutionsthat helps match the savings of one person with the investment of another • Financial Markets: institutionsthrough which savers can directly provide funds to barrowers. ○ Ex: The bond market  A bond is a certificate of indebtedness ○ Ex: The stock market  A stock is a claim of partial ownership in a firm • Financial Intermediaries:institutionsthrough which savers can indirectly provide funds to borrowers ○ Ex:  Banks  Mutual Funds- institutionsthat sell shares to the public and use the proceeds to buy portfoliosof stocks and bonds • Private Saving ○ The portion of household'sincome that is not used for consumption or paying taxes  = Y- T- C (Y= income) • Public Saving ○ Tax revenue less government spending  =T-G ( T= taxes, G= investment or govt spending • 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 = investment in a closed economy • Budget Surplus ○ An excess of tax revenue over govt spending ○ T-G ○ Public Saving • Budget Deficit ○ A shortfall of tax revenue from govt spending ○ G-T ○ Find public Savings= -(Budget deficit) 1. The meaning of Saving and Investment a. Private saving is the income remaining after householdspay their taxes and pay for consumption i. Ex of what householdsdo with saving: 1) Buy corporate bonds or equities 2) Purchase a certificate of deposit at the bank 3) Buy shares of a mutual fund 4) Let accumulate in saving or checking accounts b. Investment is the purchase of new capital b. Investment is the purchase of new capital i. Ex: 1) General motors spends $250 million to build a new factory in Flint, Michigan 2) You buy $5000 worth of computer equipmentfor your business 3) Your parents spend $300,000 to have a new house built 2. The Market for Loanable Funds a. A supply-Demand model of the financial system i. Assume: only one financial market 1) All savers deposit their savings in this market 2) All borrowers take out loans from this market. 3) There is one interest rate, which is both the return to saving and the cost of borrowing. b. The Supply of loanable funds comes from saving: i. Households with extra income can loan it out and earn interest ii. Public saving, if positive, adds to national saving and the supply of loanable funds. 1) If Negative, it reduces national saving and the supply of loanable funds. iii. The slope of the supply curve (with interest rate as and loanable funds as the axes) slopes upward because at a higher interest rate, it makes saving more attractive. c. The Demand for loanable funds comes from investments: i. Firms borrow the fundsthey need to pay for new equipment,factories, etc. ii. Households borrow the funds they need to purchase new houses. iii. Slopes downward 1) Because more people are more likely to borrow money at lower interest rates. d. Equilibrium i. Real interest rates equal the supply and demand of loanable funds. ii. Savings incentives 1) Cutting taxes, tax incentives for saving, increases the supply of loanable funds. 2) Decreases interest rate iii. Investment incentives 1) Investment tax credit increases the demand for Loanable funds. 2) Interest rate rises iv. Other factors that will shift savings or investment 1) Savings a) Changes in income b) Expectations  Government Budget Deficit reduces national saving and the supply of loanable funds. Causes interest rate to rise and investment to decrease. 2) Investment a) Technological Progress (Shifts demand curve, because when new technology comes out, businesses must keep up) b) Expectations 3) Budget Deficit, Crowding out, and Long run Growth a) Our analysis: increase in budget deficit causes fall in investment. The govt borrows to finance its deficit, leaving less funds available The govt borrows to finance its deficit, leaving less funds available for investment b) This is called crowding out. c) Recall from the preceding chapter: investment is important for long-run economic growth. Hence, budget deficits reduce the economy's growth rate and future standard of living. v. The Government Debt. a) The government finances deficits by borrowing (Selling government bonds) b) Persistent deficits lead to a rising govt debt. c) The ratio of govt debt to GDP is a useful measure of the government's indebtednessrelative to its ability to raise tax revenue d) Historically, the debt-GDP ratio usually rises during wartime and falls during peacetime- until the early 1980s vi. Conclusion 1) Like many other markets, financial markets are governed by the forces of supply and demand 2) One of the Ten Principles from Chapter 1: a) Markets are usually a good way to organize economic activity b) Financial markets help allocate the economy's scarce resources to their most efficient uses. 3) Financial markets also link the present to the future: They enable savers to convert current income into future purchasing power, and borrowers to acquire capital to produce goods and services in the future.


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Anthony Lee UC Santa Barbara

"I bought an awesome study guide, which helped me get an A in my Math 34B class this quarter!"

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."


"Their 'Elite Notetakers' are making over $1,200/month in sales by creating high quality content that helps their classmates in a time of need."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.