ECON 2203 1st Edition Lecture 16KeyEquationsExamplesDefinitionsImportant InformationOutlineNational Saving and Investmento National Saving = Private Saving + Public Savingo National Saving = Investment in a closed economyo The meaning of saving and investmentNational Saving and Investment Bill’s income: $1,000 Tax: $100Goods and Services: $700 Saving: $200 Jay’s income: $2,000Tax: $200Goods and Services: $1,200 Saving: $600Lily’s income: $1,500Tax: $150Goods and Services: $850 Saving: $500Bill’s income: $1,000 Bill’s Tax: $100 Jay’s Tax: $200 Lily’s Tax: $150 Jay’s income: $2,000 Bill’s G&S: $700 Jay’s G&S: $1,200 Lily’s G&S: $850 These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Lily’s income: $1,500 Bill’s Saving: $200 Jay’s Saving: $600 Lily’s Saving: $500o Closed economy – does not interact with other economieso Open economy – interact with other economies around the worldGDP (Y) = Consumption (C) + Investment (I) + Government Purchases (G) + Net Exports (NX) – Imports(IM)Y = C + I + G + NX – IMPrivate saving (Y – T – C)(When consumption is greater than after tax income)o Private saving – the portion of households’ income that is not used for consumption or paying taxes Private Saving (Sprivate) = Receive Income (Y) – Pay Taxes (T) – Consumption/Spending (C)Sprivate = (Y – T – C)(C> Y – T)  Private Saving is negativePublic saving (Y – G)o Public saving – tax revenue less government spending Public Saving (Spublic) = Tax (T) – Goods & Services (G)Spublic = (T – G)(A) Budget Surplus(Receiving more than spending)o Public saving is positiveo Budget surplus - (T >G) an excess of tax revenue over government spending (B) Budget Deficit(Spending more than receiving)o Public saving is negativeo Budget deficit –(G < T) a shortfall of tax revenue from government spendingNational Saving o National saving - the portion of national income that is not used for consumption or government purchases National saving (S) = Private saving (Sprivate) + Public saving (Spublic)S = (Sprivate + Spublic)In a closed Economy (NX= 0) = S = Y – C – Gin a closed economyThe Meaning of Saving and Investment o Private saving - the income remaining after households pay their taxes and pay for consumptionExamples of what households do with saving: o Buy corporate bonds or equitieso Purchase a certificate of deposit at the banko Buy shares of a mutual fund o Let accumulate in saving or checking accountsSaving(Income exceeds consumption)Investment(Person purchases new capital)>>Use paycheck to buy stock in AT&T >> Family takes out a mortgage and buys anew house >> Roommate earns $100 and deposits it in hisaccount at the bank>> Borrow $1000 from the bank to buy a carfor delivery serviceThe Meaning of Saving and Investment o Investment - the purchase of new capitalExamples of investment: o General Motors spends $250 million to build a new factory in Flint, Michigano You buy $5000 worth of computer equipment for your businesso Your parents spend $300,000 to have a new house builtRemember:In economics, investment is NOT the purchase of stocks and bonds! Question 2: 1. GDP is $10 trillion, Consumption is $6.5 trillion, and the government purchases $2 trillion, and has a budget deficit of $0.3 trillion. 2. Find public saving, taxes, private saving, national saving, and investment. Question 3:Which of the following situations represent investment? Saving? 1. Your family takes out a mortgage and buys a new house. 2. You use your $200 paycheck to buy stock in AT&T. 3. Your roommate earns $100 and deposits it in her account at a bank. 4. Youborrow$1000fromabanktobuyacartousein your pizza delivery business. Principles of MacroeconomicsLecture Notes> VERY DETAILED> COLOR CODED> Easy to read> May include information that was stated directly from the teacher in class<p>Principles of Macroeconomics</p><p>Introduction to Macroeconomics</p><p>Hui