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

2. 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

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

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

5. Financial Intermediaries
Mutual Funds
Pension Funds
Life Insurance Companies
Banks

6. What is Money?
Money
Currency in Circulation
Checkable Bank Deposits

7. 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

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

9. Types of Money
Commodity Money
Commodity backed Money
Fiat Money

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

11. 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?