Lecture 8 saving investment and the financial system

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saving investment and the financial system
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  • 1. Macroeconomics Lecture 8 Saving, Investment, and the Financial System
  • 2. Questions
  • 3. Life Expectancy http:// www.worldlifeexpectan cy.com/world-life-
  • 4. gapminder.org Hans Rosling
  • 5. Phone call NewYork to Los Angeles 1915 90 hours 2016 1 second - 99.99%
  • 6. Inputs Output Innovation
  • 7. Inputs Output Innovation Innovation Innovation Innovation
  • 8. Scarcity + Innovation creates Abundance
  • 9. Compounding (1 + r)n r = rate n = number of periods
  • 10. Grow at 10% for 5 years (1 + r)n (1 +.10)5 = 1.61
  • 11. 10% for 5 years 2% for 15 years 8% for 20 years 4% for 10 years 5% for 50 years 1.61 1.35 4.66 1.48 11.47
  • 12. Saving, Investment, and the Financial System
  • 13. Key Concepts financial system financial markets bond stock financial intermediaries mutual fund national saving private saving public saving budget surplus budget deficit market for loanable funds crowding out
  • 14. I. O. U I OweYou Promises Name Amount Date Signature
  • 15. Promissory Note Trading paper for paper I.O. U. 10 Dollars Dr. Gale
  • 16. Financial System Institutions that match people who save money with people who need money
  • 17. Financial Instruments I.O.Us Simple to Complex Relationship Contract
  • 18. Financial System Two categories Financial Markets Financial Intermediaries
  • 19. Financial Markets Bond Market Stock Market
  • 20. Financial Markets Bonds - Borrow - Debt Stocks - Sell Ownerships Equity
  • 21. Bond Markets What is a Bond? Certificate of Indebtedness
  • 22. Rexburg Pizza Company
  • 23. Rexburg Pizza Company Borrow or Sell ownership shares
  • 24. Rexburg Pizza Company Bond 100 Dollars Dr. Gale CEO 10% 2023 Pays 10 Dollars each year Pays 100 Dollars at maturity 2014 Coupon 2015 Coupon 2016 Coupon 2017 Coupon 2018 Coupon 2019 Coupon 2020 Coupon 2021 Coupon 2022 Coupon 2023 Coupon
  • 25. Bond Term - Length of time Credit Risk - chance of default Tax - How is the interest or profit taxed
  • 26. Stock Ownership Share Company sells once Then resold to other buyers Limited Liability No promises of profit Equity position
  • 27. Rexburg Pizza Company Need to raise 1,000 Dollars Create 1,000 shares and sell for 1 Dollar each Each share is worth 1/1,000 of the company
  • 28. Rexburg Pizza Company Stock Certificate One Share Dr. Gale CEO Current Share Owner: Bill Gates
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