This document contains information about saving and investment from an economics textbook chapter. It includes definitions of key terms like saving, investment, GDP, and loanable funds. It also presents some basic formulas for calculating GDP and the relationship between saving and investment. The document uses interactive multiple choice questions to test the reader's understanding of whether examples represent saving or investment. It demonstrates how a tax increase on investment income would reduce the supply of loanable funds, increase market interest rates, and lower the quantity of loanable funds available.

1. Instructor Sue Guzek
sguzek@ksu.edu or sueguzek@msn.com
Chapter 13 – Saving and Investment

2. Formulas
 GDP: Y = C + I + G + NX
 GDP closed economy: Y= C + I + G
 Investment: I = Y – C – G
 Saving equals Investment, so S = Y – C – G
 Saving also equals Private Saving + Public Saving
 S = (Y – C – T) + (T – G)
Definitions
 Saving = Deposit or purchase of stocks or bonds
 Investment = Purchase by firms of capital, buildings or
equipment (also purchase of new home)
 Saving is the source of Loanable Funds Saving is the
source of SUPPLY of Loanable funds
 Investment is the source of DEMAND of Loanable funds
 On the slides that follow, click to select the correct response
http://www.youtube.com/watch?v=MqVr2BhuGlA&feature=plcp

3.  Your family takes out a mortgage and buys a
new house
Click
Investment
Click
Saving

4.  Your family takes out a mortgage and buys a new house
Investment
Right!!!

5.  You use your $200 paycheck to buy stock in
Verizon (or ATT)
Click Investment
click Saving

6.  You use your $200 paycheck to buy stock in Verizon (or
ATT)
Saving
Right!!!

7.  Your roommate earns $100 and deposits it in her
account at a bank
Click
Investment
click Saving

8.  Your roommate earns $100 and deposits it in her account
at a bank
Saving
Right!!!

9.  You borrow $1000 from a bank to buy a car to
use in your pizza delivery business
Click Investment
Click Saving

10.  You borrow $1000 from a bank to buy a car to use in your
pizza delivery business
Investment
Right!!!

11.  According to the macroeconomic principles in the
text and the laws of supply and demand, a change
in the tax laws to increase taxes on investment
income will cause which of the following:
Supply of Loanable Funds
7%
6%
Interest 5%
Rate 4%
3%
2%
1%
0 1,200 1,600 Loanable funds $billions
Click 1. Increase the supply of loanable funds, 2. reduce the equilibrium
interest rate, 3. raise the equilibrium quantity of loanable funds
Click
1 Reduce the supply of loanable funds, 2. increase the equalibrium
interest rate, 3. lower the equilibrium quantity of loanable funds

12.  According to the macroeconomic principles in the
text and the laws of supply and demand, a change
in the tax laws to increase taxes on investment
income will cause which of the following:
Interest
Rate Supply and demand diagram of Loanable
7% Funds
6% S2
5%
4%
S1
3%
2%
1%
0 1,200 1,600 Loanable funds $billions
1 Reduce the supply of loanable funds, 2. increase the equilibrium
interest rate, 3. lower the equilibrium quantity of loanable funds

17.  End of Slide Show

18. Click here to
return to
previous slide