This document contains lecture notes on macroeconomics chapters 7 and 9. It discusses topics like savings, investment, the financial system, interest rates, how banks make money, bonds, collateral, and leverage. It also mentions that exam 1 will cover chapters 1-7 and 9, focusing on big ideas such as trade, supply and demand, GDP, the wealth of nations, and the financial system.

2. Lecture 7
Macroeconomics Chapter 7

3. Exam 1
Thursday and Friday
Multiple Choice
Short Answer
Calculator

4. Chapter 9
Saving, Investment, and
the Financial System

7. How many
marshmallows would
you have in 24 hours if
you started with one and
they were doubled every
15 minutes?

8. 2
96
The number of marshmallows would fill 1,200 earths

9. Savings
income not spent on
consumption

10. Investment
purchases of new capital

11. Bridge
Savers
have cash
Borrowers
need cash
Financial
Institutions

13. Interest
The cost to rent
money

14. What determines
market interest rates?
Supply and Demand

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

16. Loanable Funds $
%
Interest
Rate
Supply
Demand
Shortage

17. Loanable Funds $
%
Interest
Rate
Supply
Demand

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

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

20. Debt
Consumption
Investment

23. “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

24. Bonds
Special kind of loan
FaceValue
Coupon Rate
MarketValue

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

26. Bridge
Savers
have cash
Borrowers
need cash
Financial
Institutions
Insecure Property Rights

27. Bridge Fails
Insecure Property Rights
Controls on Interest Rates
Political Lending
Bank Failures and Panics
Inflation

28. Leverage
Borrow to make money
OPM
Other People’s Money

29. Leverage
$5
+$95
=$100
$105
-$95
=$10
$5
+$95
=$100
$95
-$95
=$0
$5
+$95
=$100
$90
-$95
=-$5

30. Exam 1
Chapters 1-7, 9
Big Ideas
Trade & Comparative Advantage
Supply and Demand
Equilibrium
Price Ceilings and Floors
GDP
Wealth of Nations
Eight Capitals of Innovation
Financial System