1. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. CHAPTER 23 Financial Aspects of the Household, Firm, Government, and Rest-of-the- World Sectors

2. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. The Balance Sheet Entries of the Household Sector AssetsLiabilities Real estateReal estate mortgages Other real assetsInstallment debt MoneyOther personal debt Other financial assets Net worth Total assetsTotal liabilities plus net worth

3. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. Household Portfolio Choices Households accumulate real and financial assets and liabilities in an attempt to maximize their well-being. Changes and expected changes in income, wealth, and interest rates change the economic and financial environment. In response to the changing environment, households change their desired portfolios of assets and liabilities Households will spend more or less and accumulate more or less real and financial assets and liabilities in an attempt to reach their desired portfolios.

4. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. The Balance Sheet of the Business Sector AssetsLiabilities Real assetsEquity Capital goodsCommon stock Inventories Financial assetsDebt Currency, checkableLong-term Deposits Money market mutual fundsShort-term Certificates of deposit (CDs) Mutual funds Trade credit Other financial assetsOther financial liabilities Total assetsTotal liabilities plus net worth

5. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. Business Investment To replace worn-out or obsolete capital (plant, equipment, and machinery) To increase the capital stock (plant, equipment, and machinery) To add to inventories (raw materials, goods in process, finished goods) Business Investment

6. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. Business Finance Financing Need Retained Earnings Long-Term DebtShort-Term Debt External Equity Internal Debt

7. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. The Difference between Federal Outlays and Federal Receipts, 1960 to 2001 (Billions of Dollars) Fiscal Year 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 Receipts $92.5 94.4 99.7 106.6 112.6 116.8 130.8 148.8 153.0 186.9 192.8 187.1 207.3 230.8 263.2 279.1 298.1 355.6 399.6 463.3 517.1 Outlays $92.2 97.7 106.8 111.3 118.5 118.2 134.5 157.5 178.1 183.6 195.6 210.2 230.7 245.7 269.4 332.3 371.8 409.2 458.7 503.5 590.9 Deficit (2) $.3 -3.3 -7.1 -4.8 -5.9 -1.4 -3.7 -.86 -25.2 3.2 -2.8 -23.0 -23.4 -14.9 -6.1 -53.2 -73.7 -53.7 -59.2 -40.2 -73.8 Surplus or

8. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. The Difference between Federal Outlays and Federal Receipts, 1960 to 2001 (Billions of Dollars) (continued) Fiscal Year 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Receipts $599.3 617.8 600.6 666.5 734.1 769.1 854.1 909.0 990.7 1,031.3 1,054.3 1,198.5 1,275.1 1,374.4 1,463.2 1,587.6 1,723.4 1,721.8 1,827.5 2,025.0 2,136.9 Outlays $678.2 745.8 808.4 851.8 946.4 990.3 1,003.9 1,064.1 1,143.2 1,252.7 1,323.8 1,479.4 1,525.8 1,561.4 1,637.1 1,698.1 1,752.2 1,652.5 1,703.0 1,788.0 1,856.2 Deficit (2) $-79.0 -128.0 -207.8 -185.4 -212.3 -221.2 -149.8 -155.2 -152.5 -221.4 -269.5 -280.9 -250.7 -186.7 -174.4 -110.4 -28.8 69.2 124.4 236.9 280.7 Surplus or

9. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. Federal Outlays and Receipts as a Percentage of GDP, Fiscal Year 1960 to 2001 SOURCE: Economic Report of the President, February 1996, page 368 and http://www.stls.frb.org/fred/. Percent 24 22 20 18 16 0 196019651970197519801985199019952001 Year Receipts Outlays

10. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. Exports and Imports Relative to GDP, 1960 to 2001 18.0 15.0 12.0 9.0 6.0 3.0 0 196019651970197519801985199019952001* Year*Through 1 st Quarter. Percent of GDP The shaded periods represent recessions SOURCE: http://www.stls.frb.org/fred/.

11. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. Capital Flows Relative to GDP, 1960 to 2001 1.5 1.0 0.5 0.0 -0.5 -1.5 -2.0 -2.5 -3.0 -3.5 -4.0 -4.5 -5.0 -5.5 -6.0 196019651970197519801985199019952001* Year Percent of GDP *Through 1 st quarter only.The shaded periods represent recessions SOURCE: http://www.stls.frb.org/fred/.