Tuesday

 Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 9 The Real Economy in the Long Run
Chapter 26 of 36 Saving, Investment, and the Financial System
Section 14 of 25
…
The terms saving and investment can be confusing.
Suppose Tom earns more than he now wants to spend.
He deposits his unspent income in a bank or buys some stock or bonds.
He thinks of his act as investing his money.
But to an economist investment means the purchase of new capital including equipment and buildings, so Tom's act is saving not investment.
By spending less than his income Tom is adding to the nation’s saving.
…
When Tom borrows from a bank to finance building a new house for himself
he adds to the nation's investment.
The purchase of a new house is the one form of household spending that is considered investment rather than consumption.
When Apex Corporation sells stock and uses the proceeds to build a new factory it adds to the nation's investment.
…
The accounting identity S (saving) = I (investment) shows saving and investment are equal for the entire economy.
But this is not necessarily true for every individual household or firm.
Tom can buy initial offering stock in Apex Corporation, but it is not investment until used by Apex to build the factory.
…
When Tom's savings is greater than his investment, such as when investing in a new home, he can deposit the positive difference in a bank.
When Tom's savings is less than his investment, such as when investing in a new home, he can borrow the negative difference from a bank.
…
Banks and all financial institutions make individual differences between saving and investment possible by facilitating one person's saving to finance another person's investment.
… …
he borrows from a bank
kare wa ginkō kara kariru
彼は銀行から借りる
… …
Buying a house for personal use is considered an investment. Why isn’t buying an automobile for personal use is considered an investment? ChatGPT:
Buying a house for personal use is considered an investment because it usually appreciates in value over time, allowing owners to build equity through both rising market prices and mortgage principal paydown.
In contrast, purchasing an automobile for personal use is almost never viewed as an investment since it is a rapidly depreciating consumer durable that typically loses 20-30% of its value in the first year and up to 50-60% within five years.
The automobile generates no income or capital gains, and instead incurs ongoing expenses for fuel, insurance, repairs, and maintenance that steadily consume wealth rather than build it.
The fundamental distinction is an investment is expected to deliver a positive financial return net of costs, which a home usually achieves and a personal automobile does not.

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