1. BU 204 - Unit 5 Seminar Chapter 9: Long-Run Economic Growth Chapter 10: Savings, Investment Spending, and the Financial System

2. Key Term Assignment GDP per Capita Labor productivity Diminishing returns to Physical Capital Political stability and protection of property rights Budget surplus, budget deficit, national debt Rate of return

3. Chapter 9: LR Economic Growth Real GDP per Capita Growth Rates (rule of 70) Productivity –Physical Capital, Human Capital, and Technology. Production Function –Diminishing Returns to Physical Capital Why Growth Rates Differ Role of Government

4. Chapter 10: Savings, Investment Spending, and the Financial System Savings-Investment Identity Market for Loanable Funds –Equilibrium interest rate –Rate of Return –Demand and Supply of Loanable funds –Shifts in demand of loanable funds –Shifts in supply of loanable funds

5. Inflation and Interest Rates: Fisher Effect Three Tasks of a Financial System –Reducing transaction costs, reducing risk, and providing liquidity. Types of Financial Assets –Loans, bonds, loan-backed securities, and stocks. Financial Intermediaries –Mutual funds, pension funds, life insurance companies, and banks.

6. Final Assignment: 1. Define any key terms that you feel are important in answering the following question as they are defined in the textbook and explain, in your own words what those definitions mean (5 points), and then thoroughly analyze each of the following changes in the market for loanable funds to answer the these questions Use the diagrams below, resizing them as necessary, to illustrate your analysis in explaining what happens to private savings, private investment spending, and the rate of interest if the following events occur. Assume the economy is closed (no transactions are made with foreign countries). a. The government reduces the size of its deficit to zero (10 points).

7. b. At any given interest rate, consumers decide to save more. Assume the budget balance is zero. (10 points) c. At any given interest rate, businesses become very optimistic about the future profitability of investment spending. Assume the budget balance is zero (10 points).