This document summarizes a lecture on saving, investment, and the financial system. It introduces key concepts like financial markets, bonds, stocks, and financial intermediaries. It explains how the financial system matches savers with borrowers through institutions. Financial markets are described as the bond market and stock market. Bonds represent borrowing and debt, while stocks represent selling ownership shares in a company. Examples are given of how a company can raise funds by issuing bonds or selling stock.

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

6. Phone call
NewYork to Los Angeles
1915 90 hours
2016 1 second
- 99.99%

7. Inputs
Output
Innovation

8. Inputs
Output
Innovation
Innovation
Innovation
Innovation

9. Scarcity +
Innovation
creates
Abundance

10. Compounding
(1 + r)n
r = rate
n = number of periods

11. Grow at 10% for 5 years
(1 + r)n
(1 +.10)5
= 1.61

12. 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

15. Saving, Investment,
and the
Financial System

16. 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

17. I. O. U
I OweYou
Promises
Name
Amount
Date
Signature

18. Promissory Note
Trading paper for paper
I.O. U.
10 Dollars
Dr. Gale

19. Financial System
Institutions that match
people who save
money with people
who need money

20. Financial Instruments
I.O.Us
Simple to Complex
Relationship
Contract

21. Financial System
Two categories
Financial Markets
Financial Intermediaries

22. Financial Markets
Bond Market
Stock Market

23. Financial Markets
Bonds - Borrow - Debt
Stocks - Sell Ownerships
Equity

24. Bond Markets
What is a Bond?
Certificate of
Indebtedness

26. Rexburg Pizza Company

27. Rexburg Pizza Company
Borrow
or
Sell ownership shares

28. 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

29. Bond
Term - Length of time
Credit Risk - chance of default
Tax - How is the interest or
profit taxed

30. Stock
Ownership Share
Company sells once
Then resold to other buyers
Limited Liability
No promises of profit
Equity position

31. 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

32. Rexburg Pizza Company
Stock Certificate
One
Share
Dr. Gale
CEO
Current Share Owner: Bill Gates