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

Chapter 13 - Saving, Investment, and the Financial System

by: Erin Payne

Chapter 13 - Saving, Investment, and the Financial System Econ 110

Marketplace > Kansas State University > Economcs > Econ 110 > Chapter 13 Saving Investment and the Financial System
Erin Payne
View Full Document for 0 Karma

View Full Document


Unlock These Notes for FREE

Enter your email below and we will instantly email you these Notes for principles of Macroeconomics

(Limited time offer)

Unlock Notes

Already have a StudySoup account? Login here

Unlock FREE Class Notes

Enter your email below to receive principles of Macroeconomics notes

Everyone needs better class notes. Enter your email and we will send you notes for this class for free.

Unlock FREE notes

About this Document

These notes cover the lectures of Dr. Mohaned Al-Hamdi for the weeks 3/28/16 - 4/6/16 (Week 10).
principles of Macroeconomics
Dr. Al-Hamdi
Class Notes
Macroeconomics, Econ, 110, Chapter 13, savings, investment, financial




Popular in principles of Macroeconomics

Popular in Economcs

This 5 page Class Notes was uploaded by Erin Payne on Thursday April 21, 2016. The Class Notes belongs to Econ 110 at Kansas State University taught by Dr. Al-Hamdi in Spring 2016. Since its upload, it has received 72 views. For similar materials see principles of Macroeconomics in Economcs at Kansas State University.


Reviews for Chapter 13 - Saving, Investment, and the Financial System


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: 04/21/16
  Week 10  March 28th ­ April 6th  Spring 2016  Chapter 13 Notes  Saving, Investment, and the Financial System    ● Sowers (Lenders): Earnings > Spending  ● Borrowers: Earnings < Spending    ● Financial System  ○ Group of institutions in the economy.  ■ Help match one person’s savings with another person’s investment.  ■ Moves the economy’s scarce resources from savers to borrowers.  ● Financial Institutions  ○ Financial market (buyers and sellers).  ○ Financial intermediaries (“middlemen”).  ● Financial markets are almost ​ direct financing, no middleman​  transfer of money.  ● Financial intermediaries ​ include middlemen​  between the buyer and seller.  ● Financial Markets  ○ Savers can directly provide funds to borrowers.  1.) The bond market (∴ “An IOU or promise”).  2.) The stock market.  ● The Bond Market  ○ Bond ­ certificate of indebtedness.  ■ Date of maturity ­ when the loan will be repaid.  ■ Rate of interest, paid periodically until the date of maturity.  ■ Principal ­ amount borrowed.  ○ Borrowing from the public.  ■ Used by large corporations, the federal government, or state and local  governments.  ○ Term ­ the length of time until maturity.  ■ A few months, 30 years, perpetuity.  ■ Long­term bonds are riskier than short­term bonds.  ● Usually pay higher interest rates.  ○ Credit risk ­ the probability of default.  ■ Probability that the borrower will fail to pay some of the interest or  principal.  ■ Higher interest rates for higher probability of default.  ■ U.S. government bonds tend to pay low interest rates.  ■ Junk bonds, very high interest rates.  ● Issued by financially shaky corporations.  Notes Key:Bolded texts = most important facts stressed by professor.       ∴ symbol = “Therefore” or “In other words”.       “ ” = Specific definition or word choice provided b  instructor.   Week 10  March 28th ­ April 6th  Spring 2016  ○ Tax treatment  ■ Interest on most bonds is taxable income.  ■ Municipal bonds  ● Issued by state and local government.  ● Owners are not required to pay federal income tax on the interest  income.  ● Lower interest income.  ○ Stock ­ claim to partial ownership in a firm.  ■ A claim to the profits that a firm makes.  ■ Someone cannot own stocks in government!  ○ Organized stock exchanges  ■ Stock price ­ demand and supply.  ○ Equity finance  ■ Sale of stock to raise money.  ○ Stock index  ■ Average of a group of stock prices.  ● Financial Intermediaries  ○ Savers can indirectly provide funds to borrowers.  ■ Banks  ● Take in deposits from savers.  ○ Banks pay interest.  ● Make loans to borrowers.  ○ Banks charge interest.  ● Facilitate purchasing of goods and services.  ○ Checks ­ medium of exchange.  ■ Mutual Funds  ● Institution that sells shares to the public.  ● Uses the proceeds to buy a portfolio of stocks and bonds.  ● Advantages:  ○ Diversification; professional money managers.  ● Rules of National Income Accounting  ○ Important identities.  ● Identity  ○ An equation that must be true because of the way the variables in the equation are  defined.  ○ Clarify how different variables are related to one another.    Income* (⇢ pay tax) → Consume → Save → Borrowers (⇢ firms and households) → Invest    *Remember: ​National income = GDP = Y = C + I + G + NX  Notes Key Bolded texts = most important facts stressed by professor.       ∴ symbol = “Therefore” or “In other words”.       “ ” = Specific definition or word choice provided  y instructor.   Week 10  March 28th ­ April 6th  Spring 2016  ● Closed economy:  ○ Do not interact with other economies.  ○ NX = 0.  ● Open economy:  ○ Interact with other economies.  ○ NX ≠ 0.  ● In a closed economy I = Y ­ C ­ G  ○ ∴Investment = Savings ⇒ I = S  ● S = Sprivate + Spublic where Sprivate = Y ­ T ­ C and Spublic = T ­ G.  ○ ∴​ S = (Y ­ T ­ C) + (T ­ G)  ● Private Savings  ○ Income that households have left after paying for taxes and consumption.  ● Public Savings  ○ Tax revenue that the government has left after paying for its spendings.  1.) If T > G⇒ Spublic > 0⇒ ​Budget surplus  ○ Excess of tax revenue over government spending.  2.) If T < G⇒ ​Spublic < 0⇒​ Budget deficit  ○ Deficit of tax revenue, but government in debt.  3.) If T = G⇒ Spublic = 0⇒ ​Budget balance  ○ Tax revenue and government spending in balance.  ● Saving = Investment  ○ For the economy as a whole.  ■ One person’s savings can finance another person’s investment.  ● Market for Loanable Funds  ○ Market  ■ Those who want to save supply funds.  ■ Those who want to borrow to invest demand funds.  ○ One interest rate  ■ Return to saving.  ■ Cost of borrowing.  ○ Assumption  ■ Single financial market.  ○ Supply and demand of loanable funds  ■ Source of the supply of loanable funds.  ● Saving.  ○ Source of the demand for loanable funds.  ■ Investment.  ○ Price of the loan = real interest rate.  ■ Borrowers pay for a loan.  Notes Ke Boldedtexts = most important facts stressed by professor.       ∴ symbol = “Therefore” or “In other words”.       “ ” = Specific definition or word choice pro ided by instructor.   Week 10  March 28th ­ April 6th  Spring 2016  ■ Lenders receive on their saving.  ● If interest changes, it is a change in price which means it leads to a change in  quantity of supply and/or demanded.  ● Supply and demand of loanable funds.  ○ As interest rate rises  ■ Quantity demanded declines.  ■ Quantity supplied increases.  ○ Demand curve  ■ Slope downward.  ○ Supply curve  ■ Slope upward.  ● If interest rate changes (changes in price), quantity demanded and quantity  supplied changes. NOT the supply and demand themselves (or the curves  themselves).  ● Government Policies  ○ Can affect the economy’s saving and investment.  ■ Saving incentives.  ■ Investment incentives.  ■ Government budget deficits and surpluses.  ● Shelter some savings from taxes  ○ Affect supply of loanable funds.  ○ Increase in supply.  ■ Supply curve shifts right.  ○ New equilibrium.  ■ Lower interest rate.  ■ Higher quantity of loanable funds.  ● Greater investment.  ● Investment Tax Credit  ○ Affect demand for loanable funds.  ○ Increase in demand.  ■ Demand curve shifts right.  ○ New equilibrium.  ■ Higher interest rate.  ■ Higher quantity of loanable funds.  ● Greater saving.  ● S = private saving + public saving.  ● S = (Y ­ T ­ C) + (T ­ G) ⇒ ​If budget deficit = T < G  ○ ∴Public saving ≤ 0 then S↓  ● Government ­ starts with a balanced budget  Notes Key Boldedtexts = most important facts stressed by professor.       ∴ symbol = “Therefore” or “In other words”.       “ ” = Specific definition or word choice provided by instructor.   Week 10  March 28th ­ April 6th  Spring 2016  ○ Then starts running a budget deficit.  ■ Change in supply of loanable funds.  ■ Decrease in supply.  ● Supply curve shifts left.  ■ New equilibrium.  ● Higher interest rate.  ● Smaller quantity of loanable funds.  ● Crowding Out  ○ Decrease in investment.  ○ Results from government borrowing.  ● Government ­ budget deficit  ○ Interest rate rises.  ○ Investment falls.  ● Government ­ budget surplus  ○ Increase supply of loanable funds.  ○ Reduce interest rate.  ○ Stimulates investment.  Notes Key:Bolded texts = most important facts stressed by professor.       ∴ symbol = “Therefore” or “In other words”.       “ ” = Specific definition or word choice provided by instructor.


Buy Material

Are you sure you want to buy this material for

0 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!"

Bentley McCaw University of Florida

"I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"


"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.