1. Saving and Capital Formation Chapter 9

2. Saving & Wealth Saving : flow Wealth: stock

3. Three Types of Saving Life cycle Precautionary Bequest

4. http://federalreserve.gov/releases/z1/current/accessible/f8.htm

5. National Saving and Its Components The Measurement of National Saving –National Saving (S) = Y - C - G

6. National Saving and Its Components Private and Public Components of National Saving  National Saving (S) = Y - C - G  T (net taxes) = private sector tax payments – (transfer payments and interest payments)  S = Y - C - G + T - T  S = (Y - T - C) + (T - G)  Private saving = S private = Y - T - C  Public saving = S public = T - G

7. National Saving and Its Components Private and Public Components of National Saving –Two components of private saving (S private =Y - T - C) Household (personal) saving Business saving

8. Household Saving Rate in the United States, 1960 - 2001 Observations Household saving has fallen dramatically National saving has not declined in recent years

9. National Saving and Its Components Private and Public Components of National Saving –S public = T - G –Includes Federal State Local

10. National Saving and Its Components Government Budget Deficit –The excess of government spending over tax collections (G - T)

11. National Saving and Its Components Private and Public Components of National Saving S = (Y - T - C) + (T - G) S = S private + S public National Saving (S) is composed of saving by households, businesses, and government (federal, state, and local) PrivatePublic

12. U.S. National Saving Rate, 1960 - 2001

13. The Three Components of National Saving, 1960- 2001

14. Determinants of Investment Price of capital goods Cost of funds (real interest rate) Taxes on profits of capital Prices of final goods Productivity of capital

15. Supply and Demand Again Supply of savings meets the demand for investment.

16. Global Savings Glut? If the U.S. runs a current account deficit, it will use up savings from other nations. Which comes first: current account deficit or flow of saving from other nations?