1. Module Saving, Investment, and the Financial System KRUGMAN'S MACROECONOMICS for AP* 22 Margaret Ray and David Anderson

2. What you will learn in this Module : The relationship between savings and investment spending The purpose of the four principal types of financial assets: stocks, bonds, loans and bank deposits How financial intermediaries help investors achieve diversification

3. Physical Capital The Source of Physical Capital Matching up Savings and Investment Spending

4. The Savings-Investment Spending Identity Assume a simple economy Total Income = Total Spending Total Income = Consumption + Savings Total Spending = Consumption+ Investment Consumption + Savings = Consumption + Investment.: Savings = Investment

5. The Savings-Investment Spending Identity Now, more complexity Budget Surplus Budget Deficit Budget Balance National Savings v. Private Savings Capital inflow

6. Wealth Financial Asset Physical Asset Liability The Financial System

7. Three Tasks of a Financial System Reducing Transaction Costs Reducing Risk Financial Risk Diversification Providing Liquidity Liquid Illiquid

8. Types of Financial Assets Loans Bonds Default Loan-backed Securities (Collateralized Debt Obligation - CDO) Stocks

9. Financial Intermediaries Mutual Funds Pension Funds Life Insurance Companies Banks Bank deposit Fractional reserve banking