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26 Saving, Investment, and the Financial System
The Financial System   ,[object Object],[object Object]
FINANCIAL INSTITUTIONS IN THE U.S. ECONOMY ,[object Object],[object Object]
FINANCIAL INSTITUTIONS IN THE U.S. ECONOMY ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
FINANCIAL INSTITUTIONS IN THE U.S. ECONOMY ,[object Object],[object Object]
Financial Markets ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],IOU
Financial Markets  ,[object Object],[object Object],[object Object],[object Object],[object Object]
Financial Markets  ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Financial Intermediaries ,[object Object]
Financial Intermediaries ,[object Object],[object Object],[object Object]
Financial Intermediaries  ,[object Object],[object Object],[object Object],[object Object]
Financial Intermediaries ,[object Object],[object Object],[object Object]
Financial Intermediaries  ,[object Object],[object Object],[object Object],[object Object],[object Object]
SAVING AND INVESTMENT IN THE NATIONAL INCOME ACCOUNTS ,[object Object],[object Object]
Some Important Identities ,[object Object],[object Object]
Some Important Identities ,[object Object],[object Object],[object Object]
Some Important Identities ,[object Object],[object Object]
Some Important Identities ,[object Object],[object Object],[object Object],[object Object]
The Meaning of Saving and Investment ,[object Object],[object Object],[object Object],[object Object],[object Object]
The Meaning of Saving and Investment ,[object Object],[object Object],[object Object]
The Meaning of Saving and Investment ,[object Object],[object Object],[object Object],[object Object]
The Meaning of Saving and Investment ,[object Object],[object Object]
THE MARKET FOR LOANABLE FUNDS ,[object Object]
THE MARKET FOR LOANABLE FUNDS ,[object Object]
THE MARKET FOR LOANABLE FUNDS ,[object Object]
Supply and Demand for Loanable Funds ,[object Object],[object Object]
Supply and Demand for Loanable Funds ,[object Object],[object Object],[object Object]
Supply and Demand for Loanable Funds ,[object Object],[object Object]
Figure 1 The Market for Loanable Funds Loanable Funds (in billions of dollars) 0 Interest Rate Copyright©2004  South-Western Supply Demand 5% $1,200
Supply and Demand for Loanable Funds ,[object Object],[object Object],[object Object],[object Object]
Policy 1: Saving Incentives ,[object Object]
Policy 1: Saving Incentives ,[object Object],[object Object],[object Object],[object Object]
Figure 2 An Increase in the Supply of Loanable Funds Loanable Funds (in billions of dollars) 0 Interest Rate Copyright©2004  South-Western Supply,  S 1 S 2 2.  . . . which reduces the equilibrium interest rat e . . . 3.  . . . and raises the equilibrium quantity of loanable funds. Demand 1. Tax incentives for saving increase the supply of loanable fund s . . . 5% $1,200 4% $1,600
Policy 1: Saving Incentives ,[object Object]
Policy 2: Investment Incentives ,[object Object],[object Object],[object Object],[object Object]
Policy 2: Investment Incentives ,[object Object]
Figure 3 An Increase in the Demand for Loanable Funds Loanable Funds (in billions of dollars) 0 Interest Rate Copyright©2004  South-Western 1. An investment tax credit increases the demand for  loanable fund s . . . 2.  . . . which raises the equilibrium interest rate . . . 3.  . . . and raises the equilibrium quantity of loanable funds. Supply Demand,  D 1 D 2 5% $1,200 6% $1,400
Policy 3: Government Budget Deficits and Surpluses ,[object Object],[object Object]
Policy 3: Government Budget Deficits and Surpluses ,[object Object],[object Object],[object Object]
Policy 3: Government Budget Deficits and Surpluses ,[object Object],[object Object],[object Object],[object Object]
Figure 4: The Effect of a Government Budget Deficit Loanable Funds (in billions of dollars) 0 Interest Rate Copyright©2004  South-Western 3.  . . . and reduces the equilibrium quantity of loanable funds. S 2 2.  . . . which raises the equilibrium interest rat e . . . Supply,  S 1 Demand $1,200 5% $800 6% 1. A budget deficit decreases the supply of loanable fund s . . .
Policy 3: Government Budget Deficits and Surpluses ,[object Object]
Policy 3: Government Budget Deficits and Surpluses ,[object Object]
Figure 5 The U.S. Government Debt Percent of GDP 1790 1810 1830 1850 1870 1890 1910 1930 1950 1970 1990 2010 0 20 40 60 80 100 120 Copyright©2004  South-Western Revolutionary War Civil War World War I World War II
Summary ,[object Object],[object Object]
Summary ,[object Object],[object Object],[object Object]
Summary ,[object Object],[object Object],[object Object]
Summary ,[object Object],[object Object],[object Object]

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  • 1. 26 Saving, Investment, and the Financial System
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  • 29. Figure 1 The Market for Loanable Funds Loanable Funds (in billions of dollars) 0 Interest Rate Copyright©2004 South-Western Supply Demand 5% $1,200
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  • 33. Figure 2 An Increase in the Supply of Loanable Funds Loanable Funds (in billions of dollars) 0 Interest Rate Copyright©2004 South-Western Supply, S 1 S 2 2. . . . which reduces the equilibrium interest rat e . . . 3. . . . and raises the equilibrium quantity of loanable funds. Demand 1. Tax incentives for saving increase the supply of loanable fund s . . . 5% $1,200 4% $1,600
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  • 37. Figure 3 An Increase in the Demand for Loanable Funds Loanable Funds (in billions of dollars) 0 Interest Rate Copyright©2004 South-Western 1. An investment tax credit increases the demand for loanable fund s . . . 2. . . . which raises the equilibrium interest rate . . . 3. . . . and raises the equilibrium quantity of loanable funds. Supply Demand, D 1 D 2 5% $1,200 6% $1,400
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  • 41. Figure 4: The Effect of a Government Budget Deficit Loanable Funds (in billions of dollars) 0 Interest Rate Copyright©2004 South-Western 3. . . . and reduces the equilibrium quantity of loanable funds. S 2 2. . . . which raises the equilibrium interest rat e . . . Supply, S 1 Demand $1,200 5% $800 6% 1. A budget deficit decreases the supply of loanable fund s . . .
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  • 44. Figure 5 The U.S. Government Debt Percent of GDP 1790 1810 1830 1850 1870 1890 1910 1930 1950 1970 1990 2010 0 20 40 60 80 100 120 Copyright©2004 South-Western Revolutionary War Civil War World War I World War II
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