Ch 8 Saving and Wealth Flashcards
Saving
Current income minus spending on current needs
Saving Rate
Saving divided by income
Wealth
the value of assets minus liabilities
Assets
anything of value that one owns
Liabilities
the debt one owes
Balance Sheet
A list of an economic unit’s assets and liabilities on a specific date
Flow
A measure that is defined per unit of time
Stock
A measure that is defined at a point in time
Capital gains
increases in the value of existing assets
Capital losses
Decreases in the value of existing assets
EQ: Measurement of National Savings
Y = C + I + G + NX
Y stands for
Aggregate income or production
C stands for
Consumption Expenditure
G stands for
Government Purchases
I stands for
Investment Spending
NX stands for
Net Exports
National Saving
The saving of the entire economy, equal to GDP less consumption expenditures and government purchases of goods and services. The sum of public and private saving
EQ: National Saving
S = Y - C - G
Transfer Payments
Payments the government makes to the public for which it receives no current goods or services in return
Private Saving
The saving of the private sector of the economy is equal to the after-tax income of the private sector minus consumption expenditures (Y - T - C); can be further broken down into household saving and business saving
Public Saving
The saving of the government sector is equal to net tax payments minus government purchases (T - G)
EQ: Private Saving
S = Y - T - C
EQ: Public Saving
S = T - G
Government Budget Surplus
The excess of government tax collections over government spending (T - G); the government budget surplus equals public saving
Government Budget Deficit
The excess government spending over tax collections (G - T)
Life-cycle Saving
Saving to meet long-term objectives such as retirement, college attendance, or the purchase of a home
Precautionary Saving
Saving for protection against unexpected setbacks such as the loss of a job or a medical emergency
Factors that increase the willingness of government to invest in new capital (5)
- A decline in the price of new capital goods
- A decline in the real interest rate
- Technological improvement, increase in production
- Lower taxes on the revenues generated by capital
- A higher relative price for the firms output
Crowding Out
The tendency of increased government deficits to reduce investment spending
