Bài giảng Macroeconomics - Chapter 15: Saving, Capital Formation, and Financial Markets

Chapter 15: Saving, Capital Formation, and Financial MarketsExplain the relationship between savings and wealthIdentify and apply the components of national savingDiscuss the reasons why people saveDiscuss the reasons why firms choose to invest in capital rather than financial assetsAnalyze financial markets using the tools of supply and demandSavings and WealthSaving is current income minus spending on current needsThe saving rate is saving divided by incomeWealth is the value of assets minus liabilitiesAssets are anything of value that one ownsLiabilities are the debts one owesThe balance sheet is a list of an economic unit’s assets and liabilitiesSpecific dateEconomic unit (business, household, etc.)Flow Variables and Stock VariablesA flow variables is defined per unit of timeIncome, spending, saving, wageA stock variable is defined at a point in timeWealth, debtThe flow of saving causes the stock of wealth to changeCapital Gains and LossesWealth changes when the value of your assets changeCapital gains increase the value of existing assetsCapital losses decreases the value of existing assetsNational SavingsMacroeconomics studies total savings in the economyHousehold savings is one componentBusiness and government savings are other partsStart with the definition of production and income for the economyY = C + I + G + NXY = aggregate incomeC = consumption expenditureG = government purchases of goods and servicesI = investment spendingNX = net exportsCalculate National SavingsAssume NX = 0 for simplicityNational savings (S) is current income less spending on current needsCurrent income is GDP or YSpending on current needs Exclude all investment spending (I)Most consumption and government spending is for current needsFor simplicity, we assume all of C and all of G are for current needsS = Y – C – GPrivate SavingPrivate saving is household plus business savingHousehold's total income is YHouseholds pay taxes (T) from this incomeGovernment transfer payments increase household incomeTransfer payments are made by the government to households without receiving any goods in returnInterest is paid to government bond holdersT = Taxes – Transfers – Government interest paymentsPublic Saving and National SavingPublic saving is the amount of the public sector's income that is not spend on current needsPublic sector income is net taxesPublic sector spending on current needs is GSPUBLIC = T – GNational saving (S) is private savings plus public savingsSPRIVATE + SPUBLIC = (Y – T – C) + (T – G)S = Y – C – GThe Government BudgetBalanced budget occurs when government spending equals net tax receiptsGovernment budget surplus is the excess of government net tax collections over spending (T – G)Government budget deficit is the excess of government spending over net tax collectionsFrom Surplus to DeficitThree reasons for change in government budgetGovernment receipts decreased during the 2001 recession Tax reductions during the first Bush termGovernment spending increasedSaving and the Real Interest RateSavings often take the form of financial assets that pay a return: Interest-bearing checking, Bonds, savings, CDs, mutual funds, stocksThe real interest rate (r) is the nominal interest rate (i) minus the rate of inflation ()Maximize Lifetime Well BeingPsychologists suggest individual self-control may be too weak to produce rational outcomesDevices to support savingsMake savings automatic and withdrawals costlyEasy borrowing supports high levels of current spendingInvestment and Capital FormationInvestment is the creation of new capital goods and housingFirms buy new capital to increase profitsCost – Benefit PrincipleCost is the cost of using the machine or other capitalBenefit is the value of the marginal product of the capitalThe Investment DecisionTwo important costsPrice of the capital goodsReal interest ratesOpportunity cost of the investmentValue of the marginal product of the capital is its benefitNet of operating and maintenance expenses and of taxes on revenues generatedTechnical innovation increases benefitsLower taxes increase benefitsHigher price of the output increases benefitsSaving, Investment, and Financial MarketsSupply of savings (S) is the amount of savings that would occur at each possible real interest rate (r)The quantity supplied increases as r increasesDemand for investment (I) is the amount of savings borrowed at each possible real interest rateThe quantity demanded is inversely related to rFinancial MarketEquilibrium interest rate equates the amount of saving with the investment funds demandedIf r is above equilibrium, there is a surplus of savingsIf r is below equilibrium, there is a shortage of savingsSaving and investmentReal interest rate (%)Investment ISaving SS, IrTechnological Improvement New technology raises marginal productivity of capitalIncreases the demand for investment fundsMovement up the savings supply curveHigher interest rateHigher level of savings and investmentSaving and InvestmentReal interest rate (%)IrESr'I'FGovernment Budget Deficit IncreasesGovernment budget deficit increasesReduces national savingMovement up the investment curveHigher interest rateLower level of savings and investmentPrivate investment is crowded outISaving and investmentReal interest rate (%)SrEr'FS'Increase National SavingPolicymakers know the benefits of increased national saving ratesReducing government budget deficit would increase national savingPolitical problems Increase incentives for householdsFederal consumption taxReduce taxes on dividends and investment incomeHigher national saving rate leads to greater investment in new capital goods and a higher standard of living