Lecture Notes for Saving and Investment in Open and Closed Economies
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Course
Introduction to Macroeconomics (4QQMN146)
Institution
Kings College London (KCL)
Book
Macroeconomics, Global Edition
This document provides an overview of the lecture notes for "Saving and Investment in Open and Closed Economies", a topic in the Introduction to Macroeconomics course taught at Kings College London by Agnes Kovacs. The notes provide an extensive view of the topics of Savings and Investment, includi...
Saving and investment in open and closed economies
Subjects
macroeconomics
business
business management
management
economics
open economy
closed economy
private saving
investment
government saving
consumption
autonomous
autonomous consumption
202223
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08.02.2023 Lecture Notes
Relationship between Saving and Wealth
individual wealth - the amount of their holding of assets (e.g. stocks, houses) minus their
liabilities (e.g. loans)
national wealth is the same thing but for countries
A country with a high saving rate will accumulate national wealth over time.
Private Saving
private saving - private disposable income minus consumption expenditure
private disposable income:
Yd = Y - T
Y - GDP
T - net taxes (taxes - gov. transfers - interest payments on debt)
private saving:
Sp = Y - T - C
C - consumption expenditure
private saving rate is the proportion of private disposable income that is saved:
Sp / Yd
Government Saving
government purchases consist of:
government investment (Ig)
08.02.2023 Lecture Notes 1
, government consumption (Cg)
G = Cg + Ig
government saving:
Sg = T - Cg
or Sg = T - G
budget surplus occurs if T>G, and a budget deficit (dissaving) occurs if T<G
National Saving
national saving - the sum of private saving and government saving:
S=Y-C-G
national saving rate:
S/Y
Policy and Practice: Government Policies to Stimulate Saving
governments stimulate saving through:
tax consumption (e.g. value-add tax - tax paid by a producer on the difference
between what it receives from the sales minus the costs)
provide tax incentives for saving
increase return on saving
reduce budget deficits
Uses of Saving
Uses-of-saving identity:
S = (C + I + + NX) - C - G = I + NX
S = I + NX
or as the net capital outflow identity:
08.02.2023 Lecture Notes 2
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