Saving, Investment, and the Financial System

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Presentation transcript:

Saving, Investment, and the Financial System Lesson 29 Sections 22, 23, 24

Matching Up Savings and Investment Spending Interest Rate Savings-Investment Spending Identity Savings = Investment Spending Budget Surplus Budget Deficit Budget Balance National Savings Private Savings + Budget Balance Capital Inflow

The Financial System Wealth Financial Asset Physical Asset Three Tasks of a Financial System Reduce Transaction Costs Reduce Risk Diversification Provide Liquidity

Types of Financial Assets Loans Bonds Default risk Loan-Backed Securities Securitization Taking a bunch of investments and combining them Stocks

Financial Intermediaries Mutual Funds Pension Funds Life Insurance Companies Banks

What is Money? Money Currency in Circulation Checkable Bank Deposits

Roles of Money Medium of exchange Unit of account Store of value Without money, we have to barter for goods Unit of account We can use it to compare goods Store of value Keeps it’s “value” over time

Characteristics of Money Durability - Lasts a while Portability - Easy to carry Divisibility - 100 pennies to the dollar Uniformity - All $1 are worth the same Limited Supply - Amount in circulation Acceptability - Everyone accepts the face value

Types of Money Commodity Money Commodity backed Money Fiat Money

The Money Supply Money Aggregates M1 M2 M3 Cash M1 + Savings M1 + M2 + Long Term Deposits

The Concept of Present Value Borrowing Is it worth more today? Lending Future Value Interest Saving or spending Inflation What are your investments worth tomorrow?