Thursday

 




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 24 of 24
Chapter conclusion
People borrow and lend for many reasons, including borrow to start a business or to buy a home, and lend by saving to earn interest for retirement
The financial system coordinates the borrowing and lending activity.
Financial markets in many ways are like other markets.
The price of loanable funds, which is the interest rate, is set by the forces of supply and demand.
…
One of the Ten Principles of Economics: markets are usually a good way to organize economic activity.
When financial markets balance loanable funds supply and demand they allocate the economy's limited resources to their most efficient use.
An important role of financial markets is to link the present and the future.
Savers, those who supply loanable funds, save because they want to convert some of their current income into future purchasing power.
Borrowers, those who demand loanable funds, borrow because they want to invest today to have additional capital to produce goods and services in the future.
Well-functioning financial markets are important not only for the current generation but also for future generations who will gain many of the resulting benefits.
(End of chapter 26 of 36)
… …
When a person puts money into the stock market rather than a bank account is that considered savings? ChatGPT:
Yes. In economics, money put into stocks is considered part of saving, even though it is not sitting in a bank account.
Economists define saving as income that is not used for current consumption.
Household saving includes money flowing into:
-Bank accounts
-Bonds
-Mutual funds
-Stocks
-Retirement accounts (401(k)s, IRAs)
-Other financial assets
The key idea is the money is being saved and invested rather than spent on consumption goods and services.
… …
Congratulations! 26/36 = 72% of way to becoming competent economist.

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