經(jīng)濟(jì)學(xué)英文教學(xué)課件：KW2-Ch26 Savings,Investment Spending,and the Financial System

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26>>?2009WorthPublishersSavings,InvestmentSpending,andtheFinancialSystemTherelationshipbetweensavingsandinvestmentspendingAspectsoftheloanablefundsmarket,whichshowshowsaversarematchedwithborrowersThepurposeofthefiveprincipaltypesofassets:stocks,bonds,loans,realestateandbankdepositsHowfinancialintermediarieshelpinvestorsachievediversificationSomecompetingviewsofwhatdeterminesstockpricesandwhystockmarketfluctuationscanbeasourceofmacroeconomicinstabilityMatchingUpSavingsandInvestmentSpendingAccordingtothesavings–investmentspendingidentity,savingsandinvestmentspendingarealwaysequalfortheeconomyasawhole.Thebudgetsurplusisthedifferencebetweentaxrevenueandgovernmentspendingwhentaxrevenueexceedsgovernmentspending.Thebudgetdeficitisthedifferencebetweentaxrevenueandgovernmentspendingwhengovernmentspendingexceedstaxrevenue.MatchingUpSavingsandInvestmentSpendingThebudgetbalanceisthedifferencebetweentaxrevenueandgovernmentspending.Nationalsavings,thesumofprivatesavingsplusthebudgetbalance,isthetotalamountofsavingsgeneratedwithintheeconomy.Capitalinflowisthenetinflowoffundsintoacountry.TheSavings–InvestmentSpendingIdentityInasimplifiedeconomy:(1)TotalIncome=TotalSpending(2)Totalincome=Consumptionspending+SavingsMeanwhile,spendingconsistsofeitherconsumptionspendingorinvestmentspending:(3)Totalspending=Consumptionspending+InvestmentspendingPuttingthesetogether,weget:(4)Consumptionspending+Savings=Consumptionspending+InvestmentspendingSubtractconsumptionspendingfrombothsides,andweget:(5)Savings=InvestmentspendingTheSavings–InvestmentSpendingIdentityInasimplifiedeconomy: GDP=C+I+G SPrivate=GDP+TR?T?C SGovernment=T?TR?G NS=SPrivate+SGovernment=(GDP+TR?T?C)+(T?TR?G) =GDP?C?G Hence,I=NSInvestmentspending=Nationalsavings

inaclosedeconomyInvestmentversusinvestmentspendingWhenmacroeconomistsusetheterminvestmentspending,theyalmostalwaysmean“spendingonnewphysicalcapital.”Thiscanbeconfusing,becauseinordinarylifeweoftensaythatsomeonewhobuysstocksorpurchasesanexistingbuildingis“investing.”Theimportantpointtokeepinmindisthatonlyspendingthataddstotheeconomy’sstockofphysicalcapitalis“investmentspending.”Incontrast,theactofpurchasinganassetsuchasashareofstock,abond,orexistingrealestateis“makinganinvestment.”BudgetdeficitTheSavings–InvestmentSpendingIdentityShareofGDP25%20151050–5–10–15InvestmentspendingSavingsCapitalinflowsPrivatesavingsShareofGDP25%20151050–5–10–15InvestmentspendingSavingsPrivatesavingsBudgetdeficitCapitaloutflows(a)UnitedStates(b)JapanTheSavings–InvestmentSpendingIdentityInvestmentspending=Nationalsavings+CapitalinflowinanopeneconomyI=SPrivate+SGovernment+(IM?X)=NS+KIThedifferentkindsofcapitalIt’simportanttounderstandclearlythethreedifferentkindsofcapital:physicalcapital,humancapital,andfinancialcapital.Physicalcapitalconsistsofmanufacturedresourcessuchasbuildingsandmachines.Humancapitalistheimprovementinthelaborforcegeneratedbyeducationandknowledge.Financialcapitalisfundsfromsavingsthatareavailableforinvestmentspending.Soacountrythathasapositivecapitalinflowisexperiencingaflowoffundsintothecountryfromabroadthatcanbeusedforinvestmentspending.WhoEnforcestheAccounting?Thesavings–investmentspendingidentityisafactofaccounting.Bydefinition,savingsequalsinvestmentspendingfortheeconomyasawhole.Butwhoenforcesthearithmetic?Theshortansweristhatactualanddesired

investmentspendingaren’talwaysequal.Supposethathouseholdssuddenlydecidetosavemorebyspendingless.Theimmediateeffectwillbethatunsoldgoodspileup.Andthisincreaseininventorycountsasinvestmentspending,albeitunintended.Sothesavings–investmentspendingidentitystillholds.Similarly,ifhouseholdssuddenlydecidetosavelessandspendmore,inventorieswilldrop—andthiswillbecountedasnegative

investmentspending.TheMarketforLoanableFundsTheloanablefundsmarketisahypotheticalmarketthatexaminesthemarketoutcomeofthedemandforfundsgeneratedbyborrowersandthesupplyoffundsprovidedbylenders.Theinterestrateistheprice,calculatedasapercentageoftheamountborrowed,chargedbythelendertoaborrowerfortheuseoftheirsavingsforoneyear.TheMarketforLoanableFundsTherateofreturnonaprojectistheprofitearnedontheprojectexpressedasapercentageofitscost.$150012%AInterestrateDemandforloanablefunds,DQuantityofloanablefunds(billionsofdollars)B4504TTheDemandforLoanableFunds$15004XQuantityofloanablefunds(billionsofdollars)InterestrateSupplyofloanablefunds,S45012%YTheSupplyforLoanableFundsEquilibriumintheLoanableFundsMarketInterestrate12%840$300Quantityofloanablefunds(billionsofdollars)Offersnotacceptedfromlenderswhodemandinterestrateofmorethan8%.Projectswithrateofreturnlessthan8%arenotfunded.Projectswithrateofreturn8%orgreaterarefunded.Offersacceptedfromlenderswillingtolendatinterestrateof8%orless.r*Q*ShiftsoftheDemandforLoanableFundsFactorsthatcancausethedemandcurveforloanablefundstoshiftinclude:ChangesinperceivedbusinessopportunitiesChangesinthegovernment’sborrowingCrowdingoutoccurswhenagovernmentdeficitdrivesuptheinterestrateandleadstoreducedinvestmentspending.SD1r1r2...leadstoariseintheequilibriuminterestrate.InterestrateQuantityofloanablefundsAnincreaseinthedemandforloanablefunds...D2AnIncreaseintheDemandforLoanableFundsShiftsoftheSupplyforLoanableFundsFactorsthatcancausethesupplyofloanablefundstoshiftinclude:Changesinprivatesavingsbehavior:

Between2000and2006risinghomepricesintheUnitedStatesmademanyhomeownersfeelricher,makingthemwillingtospendmoreandsavelessThisshiftedthesupplyofloanablefundstotheleft.Changesincapitalinflows:

TheU.S.hasreceivedlargecapitalinflowsinrecentyears,withmuchofthemoneycomingfromChinaandtheMiddleEast.Thoseinflowshelpedfuelabigincreaseinresidentialinvestmentspendingfrom2003to2006.Asaresultoftheworldwideslump,thoseinflowsbegantotrailoffin2008.DS1r1InterestrateQuantityofloanablefundsAnincreaseinthesupplyforloanablefunds...S2r2...leadstoafallintheequilibriuminterestrate.AnIncreaseintheSupplyofLoanableFundsInflationandInterestRatesAnythingthatshiftseitherthesupplyofloanablefundscurveorthedemandforloanablefundscurvechangestheinterestrate.Historically,majorchangesininterestrateshavebeendrivenbymanyfactors,including:changesingovernmentpolicy.technologicalinnovationsthatcreatednewinvestmentopportunities.InflationandInterestRatesHowever,arguablythemostimportantfactoraffectinginterestratesovertimeischangingexpectationsaboutfutureinflation.Thisshiftsboththesupplyandthedemandforloanablefunds.Thisisthereason,forexample,thatinterestratestodayaremuchlowerthantheywereinthelate1970sandearly1980s.InflationandInterestRatesRealinterestrate= nominalinterestrate-inflationrateIntherealworldneitherborrowersnorlendersknowwhatthefutureinflationratewillbewhentheymakeadeal.Actualloancontracts,therefore,specifyanominalinterestrateratherthanarealinterestrate.TheFisherEffectAccordingtotheFishereffect,anincreaseinexpectedfutureinflationdrivesupthenominalinterestrate,leavingtheexpectedrealinterestrateunchanged.E0S0D040Q*NominalInterestrateQuantityofloanablefundsDemandforloanablefundsat0%expectedinflationDemandforloanablefundsat10%expectedinflationSupplyofloanablefundsat10%expectedinflationE10S10D1014%Supplyofloanablefundsat0%expectedinflationTheFisherEffectChangesintheU.S.InterestRatesOverTime10-YearTreasuryconstantmaturityrate,inflationrateYear16%141210864219581970198019902000200810-YearTreasuryconstantmaturityrate7%6543Year199820002002200420062008(a)ChangesinExpectedInflationandInterestRates(b)ChangesinExpectedRateofReturnonInvestmentSpendingandInterestRatesTheFinancialSystemAhousehold’swealthisthevalueofitsaccumulatedsavings.Afinancialassetisapaperclaimthatentitlesthebuyertofutureincomefromtheseller.Aphysicalassetisaclaimonatangibleobjectthatgivestheownertherighttodisposeoftheobjectasheorshewishes.TheFinancialSystemAliabilityisarequirementtopayincomeinthefuture.Transactioncostsaretheexpensesofnegotiatingandexecutingadeal.Financialriskisuncertaintyaboutfutureoutcomesthatinvolvefinanciallossesandgains.TheFinancialSystemChangeinindividualwelfare$1,0000–2,000$1,0000–1,200Changeinindividualwelfare(a)TypicalIndividual(b)WealthyIndividualWealthlossfromlosing$1,000Wealthgainfromgaining$1,000Wealthgainfromgaining$1,000Wealthlossfromlosing$1,000ThreeTasksofaFinancialSystemReducingtransactioncosts─thecostofmakingadeal.Reducingfinancialrisk─uncertaintyaboutfutureoutcomesthatinvolvesfinancialgainsandlosses.Providingliquidassets─assetsthatcanbequicklyconvertedintocash(incontrasttoilliquidassets,whichcan’t).ThreeTasksofaFinancialSystemAnindividualcanengageindiversificationbyinvestinginseveraldifferentthingssothatthepossiblelossesareindependentevents.Anassetisliquidifitcanbequicklyconvertedintocash.Anassetisilliquidifitcannotbequicklyconvertedintocash.TypesofFinancialAssetsTherearefourmaintypesoffinancialassets:loansbondsstocksbankdepositsInaddition,financialinnovationhasallowedthecreationofawiderangeofloan-backedsecurities.TypesofFinancialAssetsAloanisalendingagreementbetweenaparticularlenderandaparticularborrower.Adefaultoccurswhenaborrowerfailstomakepaymentsasspecifiedbytheloanorbondcontract.Aloan-backedsecurityisanassetcreatedbypoolingindividualloansandsellingsharesinthatpool.FinancialIntermediariesAfinancialintermediaryisaninstitutionthattransformsthefundsitgathersfrommanyindividualsintofinancialassets.Amutualfundisafinancialintermediarythatcreatesastockportfolioandthenresellssharesofthisportfoliotoindividualinvestors.Apensionfundisatypeofmutualfundthatholdsassetsinordertoprovideretirementincometoitsmembers.FinancialIntermediariesAlifeinsurancecompanysellspoliciesthatguaranteeapaymenttoapolicyholder’sbeneficiarieswhenthepolicyholderdies.Abankdepositisaclaimonabankthatobligesthebanktogivethedepositorhisorhercashwhendemanded.Abankisafinancialintermediarythatprovidesliquidassetsintheformofbankdepositstolendersandusesthosefundstofinancetheilliquidinvestmentsorinvestmentspendingneedsofborrowers.FidelitySpartanS&P500IndexFund,

TopHoldings(asofSeptember2008)AnExampleofaDiversifiedMutualFund

CompanyPercentofmutualfundassetsinvestedinacompanyExxonMobil3.96%GeneralElectric2.49Procter&Gamble2.08Microsoft2.06Johnson&Johnson1.90JPMorganChase1.69Chevron1.66AT&T1.62BankofAmerica1.57IBM1.56BanksandtheSouthKoreanMiracleIntheearly1960s,SouthKorea’sinterestratesondepositswereverylowatatimewhenthecountrywasexperiencinghighinflation.Sosaversdidn’twanttosavebyputtingmoneyinabank,fearingthatmuchoftheirpurchasingpowerwouldbeerodedbyrisingprices.Instead,theyengagedincurrentconsumptionbyspendingtheirmoneyongoodsandservicesoronphysicalassetssuchasrealestateandgold.In1965theSouthKoreangovernmentreformedthecountry’sbanksandincreasedinterestrates.Overthenextfiveyearsthevalueofbankdepositsincreased600%andthenationalsavingsratemorethandoubled.TherejuvenatedbankingsystemmadeitpossibleforSouthKoreanbusinessestolaunchagreatinvestmentboom,akeyelementinthecountry’sgrowthsurge.FinancialFluctuationsFinancialmarketfluctuationscanbeasourceofmacroeconomicinstability.Stockpricesaredeterminedbysupplyanddemandaswellasthedesirabilityofcompetingassets,likebonds:whentheinterestraterises,stockpricesgenerallyfallandviceversa.FinancialFluctuationsThevalueofafinancialassettodaydependsoninvestors’beliefsaboutthefuturevalueorpriceoftheasset.Ifinvestorsbelievethatitwillbeworthmoreinthefuture,theywilldemandmoreoftheassettodayatanygivenprice.Consequently,today’sequilibriumpriceoftheassetwillrise.FinancialFluctuationsIfinvestorsbelievetheassetwillbeworthlessinthefuture,theywilldemandlesstodayatanygivenprice.Consequently,today’sequilibriumpriceoftheassetwillfall.Today’sstockpriceswillchangeaccordingtochangesininvestors’expectationsaboutfuturestockprices.HowNow,DowJones?Financialnewsreportsoftenleadwiththeday’sstockmarketaction,asmeasuredbychangesintheDowJonesIndustrialAverage,theS&P500,andtheNASDAQ.Allthreearestockmarketindices.Liketheconsumerpriceindex,theyarenumbersconstructedasasummaryofaverageprices.TheDow,createdbythefinancialanalysiscompanyDowJones,isanindexofthepricesofstockin30leadingcompanies,TheS&P500isanindexof500companies,createdbyStandardandPoor’s.TheNASDAQiscompiledbytheNationalAssociationofSecuritiesDealers.Themovementinanindexgivesinvestorsaquick,snapshotviewofhowstocksfromcertainsectorsoftheeconomyaredoing.FinancialFluctuationsFinancialmarketfluctuationscanbeasourceofmacroeconomicinstability.Therearetwoprincipalcompetingviewsabouthowassetpriceexpectationsaredetermined.Oneview,whichcomesfromtraditionaleconomicanalysis,emphasizestherationalreasonswhyexpectationsshouldchange.Theother,widelyheldbymarketparticipantsandalsosupportedbysomeeconomists,emphasizestheirrationalityofmarketparticipants.FinancialFluctuationsOneviewofhowexpectationsareformedistheefficientmarketshypothesis,whichholdsthatthepricesoffinancialassetsembodyallpubliclyavailableinformation.Itimpliesthatfluctuationsareinherentlyunpredictable—theyfollowarandomwalk.IrrationalMarkets?Manymarketparticipantsandeconomistsbelievethat,basedonactualevidence,financialmarketsarenotasrationalastheefficientmarketshypothesisclaims.Suchevidenceincludesthefactthatstockpricefluctuationsaretoogreattobedrivenbyfundamentalsalone.AssetPricesandMacroeconomicsHowdomacroeconomistsandpolicymakersdealwiththefactthatassetpricesfluctuatealotandthatthesefluctuationscanhaveimportanteconomiceffects?Shouldpolicymakerstrytopopassetbubblesbeforetheygettoobig?Thisdebatecoveredinchapter17.TheS&P500IndexfromOctober1982toApril2005TheGreatAmericanHousingBubbleBetween2000and2006,therewasahugeincreaseinthepriceofhousesinAmerica.Anumberofeconomistsarguedthatthispriceincreasewasexcessive—thatitwasa“bubble”.Yettherewerealsoanumberofeconomistswhoarguedthattheriseinhousingpriceswascompletelyjustified.Theypointed,inparticular,tothefactthatinterestrateswereunusuallylowintheyearsofrapidpriceincreases.Theyarguedthatlowinterestratescombinedwithotherfactors,suchasgrowingpopulation,explainedthesurgeinprices.TheGreatAmericanHousingBubbleAlanGreenspan,thechairmanoftheFederalReserve,concededin2005thattheremightbesome“froth”inthemarketsbutdeniedthattherewasanynationalbubble.Unfortunately,itturnedoutthattheskepticswereright.Greenspanhimselfwouldlaterconcedethattherehad,infact,beenahugenationalbubble.In2006,ashomepricesbegantoleveloff,itbecameapparentthatmanybuyershadheldunrealisticexpectationsaboutfutureprices.Homepricesbeganfalling,andthedemandforhousingfelldrastically.TheGreatAmericanHousingBubbleIndex(2000=100)2202001801601401201008020002002200420062008Year20002002200420062008YearNewsingle-familyhousessold(thousands)1,4001,2001,000800600Investmentinphysicalcapitalisnecessaryforlong-runeconomicgrowth.Soinorderforaneconomytogrow,itmustchannelsavingsintoinvestmentspending.Accordingtothesavings–investmentspendingidentity,savingsandinvestmentspendingarealwaysequalfortheeconomyasawhole.Thegovernmentisasourceofsavingswhenitrunsapositivebudgetbalanceorbudgetsurplus;itisasourceofdissavingswhenitrunsanegativebudgetbalanceorbudgetdeficit.Inaclosedeconomy,savingsisequaltonationalsavings,thesumofprivatesavingsplusthebudgetbalance.Inanopeneconomy,savingsisequaltonationalsavingspluscapitalinflowofforeignsavings.Whenacapitaloutflow,ornegativecapitalinflow,occurs,someportionofnationalsavingsisfundinginvestmentspendinginothercountries.Thehypotheticalloanablefundsmarketshowshowloansfromsaversareallocatedamongborrowerswithinvestmentspendingprojects.Inequilibrium,onlythoseprojectswitharateofreturngreaterthanorequaltotheequilibriuminterestratewillbefunded.Byshowinghowgainsfromtradebetweenlendersandborrowersaremaximized,theloanablefundsmarketshowswhyawellfunctioningfinancialsystemleadstogreaterlong-runeconomicgrowth.Governmentbudgetdeficitscanraisetheinterestrateandcanleadtocrowdingoutofinvestmentspending.Changesinperceivedbusinessopportunitiesandingovernmentborrowingshiftthedemandcurveforloanablefunds;changesinprivatesavingsandcapitalinflowsshiftthesupplycurve.Becauseneitherborrowersnorlenderscanknowthefutureinflationrate,loansspecifyanominalinterestrateratherthanarealinterestrate.Foragivenexpectedfutureinflationrate,shiftsofthedemandandsupplycurvesofloanablefundsresultinchangesintheunderlyingrealinterestrate,leadingtochangesinthenominalinterestrate.AccordingtotheFishereffect,anincreaseinexpectedfutureinflationraisesthenominalinterestrateone-to-onesothattheexpectedrealinterestrateremainsunchanged.Householdsinvesttheircurrentsavingsorwealthbypurchasingassets.Assetscomeintheformofeitherafinancialassetoraphysicalasset.Afinancialassetisalsoaliabilityfromthepointofviewofitsseller.Therearefourmaintypesoffinancialassets:loans,bonds,stocks,andbankdeposits.Eachofthemservesadifferentpurposeinaddressingthethreefundamentaltasksofafinancialsystem:reducingtransactioncosts—thecostofmakingadeal;reducingfinancialrisk—uncertaintyaboutfutureoutcomesthatinvolvesfinancialgainsandlosses;andprovidingliquidassets—assetsthatcanbequicklyconvertedintocashwithoutmuchlossofvalue(incontrasttoilliquidassets,whicharenoteasilyconverted).Althoughmanysmallandmoderate-sizeborrowersusebankloanstofundinvestmentspending,largercompaniestypicallyissuebonds.Bondswithahigherriskofdefaultmusttypicallypayahigherinterestrate.Businessownersreducetheirriskbysellingstock.Althoughstocksusuallygenerateahigherreturnthanbond