The document discusses key concepts related to macroeconomics including savings, investment, and the financial system. It covers how savings from households is funneled through financial institutions to businesses and governments for investment, and how interest rates are determined by the supply and demand of loanable funds. Financial institutions make money by charging higher interest rates on loans than what they pay on deposits. The document also briefly discusses different types of business organizations like proprietorships, partnerships, and corporations as well as financial statements and stock valuation.

2. Macroeconomics
Lecture 11
Saving, Investment,
and the Financial System
Chapter 9

3. Questions?

4. Exam 2
Thursday March 1
Chapters 8-12

8. Savings
income not spent on
consumption

9. Investment
purchases of new capital

10. Bridge
Savers
have cash
Borrowers
need cash
Financial
Institutions

12. Interest
The cost to rent
money

13. What determines
market interest rates?
Supply and Demand

14. Loanable Funds $
%
Interest
Rate
Supply
Demand
households
business
government
foreign
households
business
government
foreign
FED

15. Loanable Funds $
%
Interest
Rate
Supply
Demand
Shortage

16. Loanable Funds $
%
Interest
Rate
Supply
Demand

17. How do banks make
money?
Rent low
Rent high
Spread

18. How do banks make
money?
evaluates risk
prices risk
spread risk

19. “Capital will go
where it is
wanted, and it will
stay where it is
well treated. It
cannot be driven;
it can only be
attracted.”Walter
Wriston

20. Bonds
Special kind of loan
FaceValue
Coupon Rate
MarketValue

23. Collateral
Something the borrower
agrees to give the lender
if the borrower defaults
reduce risk

24. Firm
An organization that
organizes the six capitals

25. Types of Firms
Proprietorships
Partnerships
Corporations

26. Issues
Complexity
Liability
Taxes
Raising Money
Control

27. Proprietorship
one owner
easy to create
one tax
unlimited liability
hard to raise money
ends with death

28. Partnership
two or more owners
easy to create
combine talents
all are liable
disagreements
ends with death

29. Corporation
one to many owners
limited liability
raise financial capital
does not die with shareholders
harder to create
more regulation
double taxation

30. Number Revenues
Proprietorships 70% 4%
Partnerships 10% 16%
Corporations 20% 80%

31. Dividends
portion of profits paid to
shareholders

32. Raising Money
Retained Earnings
Sell Ownership Shares
Borrow

33. Financial Statements
Income Statement
Balance Sheet

34. Income Statement
Revenue
- Expenses
= Net Income
What happened between two dates?

35. Balance Sheet
What I own
What is the status on a specific date?
What I owe
What I am worth
=
Assets
Liabilities
Net Worth
Must balance

36. Valuation
Stock Price x Number of Shares
$50 a share
1,000,000 shares
$50,000,000 value

37. Valuation
Share Price: $160
Share Outstanding: 5.165 billion
Value ?
$826.4 billion