1. Savings and investment
Foldvary, Econ 1a

2. Time Preference
the general preference of people for goods in the present time relative to goods in the future.
Why: 1) finite life span,
2) uncertain future.

3. The natural rate of interest
The rate at which goods are discounted into the future constitutes the rate of interest.
In equilibrium, the natural interest rate makes savings equal to investment.

4. Loanable funds Savings available to borrowers.
The supply of loanable funds is savings.
The demand is from borrowers.
Some borrowing is for consumption.
Net savings is total savings minus borrowing for consumption.
Net savings equals investment.

5. Debt service pure interest: real interest. inflation premium.
risk premium (for bad loans)
fluctuation risk, long-term bonds.
tax premium

6. The stock market Equity finance. Equities.
Retained earnings: profits held.
Double taxation of corporate profit.
Double taxation increases corporate debt and retained earnings.

7. Depositors are lenders
Your deposits become loans to others.
A check is a loan.
Paying with a credit card is borrowing.
The seller pays a fee.

8. Mutual funds A portfolio is a set of assets.
A mutual fund is a corporation that owns a portfolio of stocks, bonds, and other assets.
Mutual funds enable diversification and professional financial management.

9. Government savings Governments also save and borrow.
National savings includes both private and governmental savings.
Governments with budget deficits have negative savings, or dissavings.
S = (Y-T-C) + (T-G), private savings plus government savings. T: taxes.

10. Effect of government borrowing
Government competes with private enterprise to sell bonds.
Government borrowing crowds out private borrowing.
There is less investment, less growth.
Unless government borrowing is for productive investment.

11. The structure of capital goods
The time structure, like a stack of pancakes.
Higher on the stack: longer held.
Higher order goods, more responsive to the rate of interest.
Lower interest rates make the stack taller.
The creation of money acts like savings,
but results in wasted investments.