Economics (Fach) / Saving, Investment and the financial system (Lektion)
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Saving, Investment and the financial system
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- Financial system: the group of institutions in the economy that helps to match one person's saving with another person's investment.
- Financial markets: institutions through which a person who wants to save money can directly supply funds to a person who wants to borrow.
- Financial intermediaries: Financial institutions through which savers can indirectly provide funds to borrowers
- how to calculate Investment Y-C-G=I
- National saving: the total income in the economy that remains after paying for consumption and government purchases. S=I S=Y-C-G or S= (Y-T-C) + (T-G) T=Taxes-transfer payments
- Private saving (Y-T-C) : the income that households have left after paying for taxes and consumption
- Public saving (T-G) : the tax revenue that the government has left after paying for its spending
- G> T GOVERNMENT SPENDING TAXES BUDGET DEFICTE SPENDS MORE MONEY THEN IT RECIEVES
- GOVERNMENT SPENDING TAXES G<T BUDGET SURPLUS
- The interest rate is It represents the amount that borrowers pay for loans and the amount that lenders receive on their saving. By interest rate '' real interest rate'' is meant.
- The supply of loanable funds comes from those people who have some extra income they want to save and lend out ( directly or indirectly). So saving is the source of the supply of loanable funds.
- The demand for loanable funds comes from households and firms who wish to borrow to make investments. So investment is the source of the demand for loanable funds.
- Crowding out: a decrease in investment that results from government borrowing.
- A bond a certificate of indebtedness (schuldenlast) that specifies the obligations of the borrower to the holder of the bond.
- Stock a claim to partial ownership in a firm, and therefore a claim to the profits that the firm makes. A stock is commonly referred to as a share or as an equity.
- Equity finance: the sale of stock (to raise money)
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- Debt finance: the sale of bonds
- sub-prime market lending to individuals with high credit risks.
- market for loanable funds is the market in which those who want to save supply funds and those who want to borrow to invest demand funds.
- Loanable funds refers to all income that people have chosen to save and lend out, rather than use for their own consumption.
- real interest rate The equilibrium of the supply and demand for loanable funds
- Taxes on interest income substantially reduce the future payoff from current saving and, as a result, reduce the incentive to save.
- A tax decrease ncreases the incentive for households to save at any given interest rate.
- If a change in tax law encourages greater saving, the result will be lower interest rates and greater investment.
- An investment tax credit increases the incentive to borrow. • Increases the demand for loanable funds. • Shifts the demand curve to the right. • Results in a higher interest rate and a greater quantity saved
- If a change in tax laws encourages greater investment, the result will be higher interest rates and greater saving.
- This fall in investment is referred to as crowding out. a decrease in investment that results from government borrowing.