Download Saving, Investment, and the Financial System

© 2007 Thomson South-Western
The Goals of This Chapter
• We discuss the large variety of institutions that
make up the financial system (金融體系) in
the economy.
• We discuss the relationship between the
financial system and two key macroeconomic
variables: saving (儲蓄) and investment (投資).
• We develop a model of the supply and demand
for funds in financial markets. In the model,
the interest rate is the price that adjusts to
balance supply and demand.
© 2007 Thomson South-Western
Financial System
• The financial system consists of the group of
institutions in the economy that help to match
one economic agent’s saving with another
agent’s investment.
• It moves the economy’s scarce resources
(funds) from lenders (資金供給者，suppliers
of funds) to borrowers (資金需求者，
demanders for funds).
© 2007 Thomson South-Western
FINANCIAL INSTITUTIONS IN THE U.S.
ECONOMY
• The financial system is made up of financial
institutions that coordinate the decisions of
savers (lenders) and borrowers.
• Financial institutions can be grouped into two
different categories:
– Financial markets (金融市場)
– Financial intermediaries (金融中介機構)
© 2007 Thomson South-Western
FINANCIAL INSTITUTIONS IN THE U.S.
ECONOMY
• Financial markets are the institutions through
which savers (lenders) can directly provide
funds to borrowers.
• Financial intermediaries are financial
institutions through which savers can
indirectly provide funds to borrowers.
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Financial Markets
cash
Savers
borrowers
Holders of Securities
Issuers of Securities
stock or bonds
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Financial Intermediarces
• Bank
Savers
Loans
Deposits
Borrowers
Banks
Suppliers
of funds
Demanders
for funds
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Financial Intermediarces
• Mutual Funds
Savers
Holders of
Mutual funds
Shares of
Mutual funds
Mutual
Funds
Holding Stock
or
bond
Borrowers
Demanders
for funds
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Financial Markets
• Financial Markets according to the term of
trading securities (有價證券到期期限)
– Money Market (貨幣市場)
– Capital Market (資本市場)
• Financial Markets according to the types of
trading securities
– Stock Market (股票市場)
– Bond Market (債券市場)
© 2007 Thomson South-Western
Financial Markets
• The Bond Market
• A bond is a certificate of indebtedness that specifies
obligations of the issuer of the bond (the borrower)
to the holder of the bond (the lender).
• Characteristics of a Bond
• Term (Maturity): The length of time until the bond
matures.
• Default Risk (違約風險): The probability that the
borrower will fail to pay some of the interest or principal.
• Tax Treatment: The way in which the tax laws treat the
interest on the bond.
© 2007 Thomson South-Western
Financial Markets
• The Stock Market
• Stock represents a claim to partial ownership in a
firm and is therefore, a claim to the profits that the
firm makes.
• The sale of stock to raise money for operations and
investment is called equity financing.
• Compared to bonds, stocks offer both higher risk and
potentially higher returns.
• The most important stock exchanges in the United
States are the New York Stock Exchange, the
American Stock Exchange, and NASDAQ.
© 2007 Thomson South-Western
Financial Markets
• The Stock Market
• Most newspaper stock tables provide the following
information:
•
•
•
•
Price (of a share)
Volume (number of shares sold)
Dividend (profits paid to stockholders, 股利)
Price-earnings ratio (本益比)
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The Revenue Curve for Bond
持有債劵收益
F
45o
0
F(本期應債還債權人的金額)
現金流量
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The Revenue Curve for Stock
持有股票收益
45o
0
F
現金流量
© 2007 Thomson South-Western
Financial Intermediaries
• Financial Intermediaries are financial
institutions through which savers (lenders) can
indirectly provide funds to borrowers.
• Two of most important financial intermediaries
are:
• Banks (銀行)
• Mutual Funds (共同基金)
© 2007 Thomson South-Western
Banks
• They take deposits from agents who want to save
and use the deposits to make loans to agents who
want to borrow.
• They pay depositors interest on their deposits and
charge borrowers slightly higher interest on their
loans.
© 2007 Thomson South-Western
Banks
Banks facilitate the purchases of goods and services by allowing
people to write checks against their deposits or to use ATM
card to pay the bill.
Banks help create a special asset called a medium of exchange
(交易媒介). A medium of exchange is an item that people can
easily use to engage in transactions.
A bank’s role in providing a medium of exchange distinguishes it
from many other financial institutions.
© 2007 Thomson South-Western
Mutual Funds
• A mutual fund is an institution that sells shares to
the public and uses the proceeds to buy a portfolio,
of various types of stocks, bonds, or both.
• Mutual funds allow people with small amounts of
money to easily diversify.
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Other Financial Institutions
•
•
•
•
Credit unions
Pension funds
Insurance companies
Loan sharks
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SAVING AND INVESTMENT IN THE
NATIONAL INCOME ACCOUNTS
• Recall that GDP is both total income generated
in an economy and total expenditure spent on
the economy’s output of goods and services for
a given period of time:
Y = C + I + G + NX
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Some Important Identities
• Consider a closed economy – one that does not
engage in international trade:
Y = C + I + G,
in which G is government consumption, and I is
domestic investment, which consists of private
investment ( I p ) and public investment ( I G ) .
I  I P  IG
© 2007 Thomson South-Western
Some Important Identities
• Subtract C and G from both sides of the above
identity to yield:
Y–C–G=I
• The left hand side of the equation is the total
income in the economy after paying for private
consumption and government consumption.
© 2007 Thomson South-Western
Some Important Identities
• Adding and Subtracting net tax revenues (T) on the left hand
side of the above identity gives:
[(Y – T) – C] + (T – G) = I,
in which [(Y – T) – C] is private saving (民間儲蓄), and (T –
G) is government (public) saving (政府儲蓄). The sum of the
two savings called national saving (國民儲蓄).
• Substituting S for the terms on the left-hand side of the above
identity yields:
S=I
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Some Important Identities
• National saving is equal to:
S=I
S=Y–C–G
S = (Y – T – C) + (T – G)
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The Meaning of Saving and Investment
• National Saving
• National saving is the total income in the economy
that remains after paying for private consumption
and government consumption.
• Private Saving
• Private saving is the amount of income that
households have left after paying their taxes and
paying for their consumption.
• Private saving (= Y – T – C)
© 2007 Thomson South-Western
The Meaning of Saving and Investment
• Government Saving (Public Saving)
• Government saving is the amount of tax revenue
that the government has left after paying for its
consumption
• Public saving = (T – G)
• Budget deficit  IG  (T  G)  ( IG  G)  T
© 2007 Thomson South-Western
Budget Surplus and Deficit
• If T > G+ I G , the government runs a budget surplus
(預算賸餘) because it receives more money than it
spends on consumption and investment.
• If G > T + I G , the government runs a budget deficit
(預算赤字) because it spends more money than it
receives in tax revenue.
© 2007 Thomson South-Western
The Interpretation of Saving and
Investment identity
• For the closed economy as a whole, national
saving must equal domestic investment:
S=I
• For the closed economy as a whole, private
saving can be used to finance either
government’s budget deficit (IG  G  T ) or private
investment ( I P ).
(Y  T  C )  ( IG  G  T )  I P
© 2007 Thomson South-Western
THE MARKET FOR LOANABLE FUNDS
• Assume that the economy has only one
financial market, called the market for
loanable funds (可貸資金市場).
• We want to this model to explain how
financial markets coordinate the economy’s
saving and investment.
• The market for loanable funds is the market in
which those who want to lend out their saving
meet those who want to borrow to make
investments.
© 2007 Thomson South-Western
The Loanable Funds Market Model
•
Government
policy
Government
policy
Savers
Suppliers
of funds (S)
Loanable
Funds
Market
Borrowers
Demanders
for funds (D)
D=S determines equilibrium
real interest rate and quantity of loans.
© 2007 Thomson South-Western
Supply and Demand for Loanable Funds
• Loanable funds refers to all income that people
have chosen to save and lend out, rather than
use for their own consumption.
• The supply of loanable funds comes from
people who have extra income they want to
save and firms.
• This lending can occur directly, such as
purchasing bonds from firms, or it can occur
indirectly, such as making deposits in a bank.
© 2007 Thomson South-Western
Supply and Demand for Loanable Funds
• The demand for loanable funds comes from
households, firms and government that wish to
borrow to make investments.
• This demand includes families taking out
mortgages to buy new homes, firms borrowing
to buy new equipments or build factories, and
government borrowing to finance its budget
deficits.
© 2007 Thomson South-Western
Real Interest Rate is the price of funds
• Real interest rate is the price of the loan, which
represents the revenues that lenders receive on their
saving (投資收益) and the amount that borrowers
pay for loans (資金成本).
• Because a high real interest rate makes borrowing
more expensive, the quantity of loanable funds
demanded falls as the real interest rate rises.
• Because a high interest rate makes saving more
attractive, the quantity of loanable funds supplied
increases as the real interest rate rises.
© 2007 Thomson South-Western
Supply and Demand for Loanable Funds
• The loanable funds market works much like
other markets in the economy.
• The real interest rate adjusts to balance the
supply and demand for loanable funds.
• The equality between the supply of loanable
funds and the demand for loanable funds
determines the equilibrium real interest rate.
© 2007 Thomson South-Western
The Market for Loanable Funds
Interest
Rate
Supply
5%
Demand
0
$1,200
Loanable Funds
(in billions of dollars)
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Supply and Demand for Loanable Funds
• Government Policies That Affect Saving and
Investment
• Taxes and saving
• Taxes and investment
• Government budget deficits and surpluses
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Policy 1: Saving Incentives
• Taxes on interest income reduce the future
payoff from (returns on) current saving and, as
a result, reduce the incentive to save.
• A tax decrease increases the incentive for
households to save at any given interest rate.
• The supply of loanable funds curve shifts right.
• The equilibrium interest rate decreases.
• The quantity demanded for loanable funds
increases.
© 2007 Thomson South-Western
An Increase in the Supply of Loanable Funds
Interest
Rate
Supply, S1
S2
1. Tax incentives for
saving increase the
supply of loanable
funds . . .
5%
4%
2. . . . which
reduces the
equilibrium
interest rate . . .
Demand
0
$1,200
$1,600
Loanable Funds
(in billions of dollars)
3. . . . and raises the equilibrium
quantity of loanable funds.
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Policy 1: Saving Incentives
• If a change in tax law encourages saving, the
result will be lower interest rates greater saving
and hence greater investment.
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Policy 2: Investment Incentives
• An investment tax credit (投資租稅抵減)
increases the incentive for firms to borrow.
• Increases the demand for loanable funds.
• Shifts the demand curve to the right.
• Results in a higher interest rate, greater
investments, and hence a greater quantity
saved.
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Policy 2: Investment Incentives
• If a change in tax laws encourages greater
investment, the result will be higher interest
rates and greater saving.
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Investment Incentives Increase the Demand for Loanable
Funds
Interest
Rate
Supply
1. An investment
tax credit
increases the
demand for
loanable funds . . .
6%
5%
2. . . . which
raises the
equilibrium
interest rate . . .
0
D2
Demand, D1
$1,200
$1,400
Loanable Funds
(in billions of dollars)
3. . . . and raises the equilibrium
quantity of loanable funds.
© 2007 Thomson South-Western
Policy 3: Government Budget Deficits and
Surpluses
• When the government spends more on
consumption and investment than it receives in
tax revenues, the short fall is called the budget
deficit.
• The accumulation of past budget deficits is
called the outstanding government debt (未償
還債務餘額).
© 2007 Thomson South-Western
Policy 3: Government Budget Deficits and
Surpluses
• Government borrowing to finance its budget
deficit reduces the supply of loanable funds
available to finance investment by households
and firms.
• This fall in investment is referred to as the
effect of crowding out (排擠效果).
• The deficit borrowing crowds out private borrowers
who are trying to finance investments.
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Policy 3: Government Budget Deficits and
Surpluses
• A budget deficit decreases the supply of
loanable funds.
• Shifts the supply curve to the left.
• Increases the equilibrium interest rate.
• Reduces the equilibrium quantity of loanable
funds.
© 2007 Thomson South-Western
The Effect of a Government Budget Deficit
Interest
Rate
S2
Supply, S1
1. A budget deficit
decreases the
supply of loanable
funds . . .
6%
5%
2. . . . which
raises the
equilibrium
interest rate . . .
Demand
0
$800
$1,200
Loanable Funds
(in billions of dollars)
3. . . . and reduces the equilibrium
quantity of loanable funds.
© 2007 Thomson South-Western
Policy 3: Government Budget Deficits and
Surpluses
• When government reduces national saving by
running a deficit, the interest rate rises and
investment falls.
• A budget surplus increases the supply of
loanable funds, reduces the interest rate, and
stimulates investment.
© 2007 Thomson South-Western
The U.S. Government Debt
Percent
of GDP
120
World War II
100
80
60
Revolutionary
War
Civil
War
World War I
40
20
0
1790
1810
1830
1850
1870
1890
1910
1930
1950
1970
1990
2010
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個案研究：台灣政府財政赤字
1.政府歲出與歲入
●
歲入：
- 稅課收入（中央：稅課收入；地方：稅課收入及中
央統籌分配稅）
- 非稅課收入（財產售價，規費及罰鍰收入）
- 補助收入（中央政府對地方政府補助：一般型補助
以及計劃型補助）
●
歲出：
- 經常門支出
- 資本門支出
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2.預算收支平衡與財政赤字
●
支出＝歲出＋還本數
●
收入＝歲入＋賒借收入
●
預算收支平衡：支出＝收入
●
由預算收支平衡，及預算收支定義可得：
歲出＋還本數＝歲入＋賒借收入（舉借數）
●
財政赤字 ＝歲出－歲入
＝舉借數(借)-還本數(還)+移用以前年度歲計賸餘
＝未償還債務餘額增加數(欠)+移用以前年度歲計賸餘
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3.賒借是財政管理的週轉工具
●
●
●
財政赤字出現表示，政府須藉財務操作達到預算
收支平衡
政府財務操作工具：
- 借：向外舉借或發行公債
- 還：還本金額
『公共債務法』對政府財務操作工具的限制：
- 流量管制：賒借收入(借)不得超過該年度總預算
15%。
- 存量管制：未償還債務餘額(欠)不得超過前三年
名目GDP的一定比率。
- 強制還本：年度還本數(還)不得低於該年度稅課
收入的5%。
© 2007 Thomson South-Western
中央政府未償還債務餘額佔GNP比例圖
30
25
20
15
10
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
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Summary
• The U.S. financial system is made up of
financial institutions such as the bond market,
the stock market, banks, and mutual funds.
• All these institutions act to direct the resources
of households who want to save some of their
income into the hands of households and firms
who want to borrow.
© 2007 Thomson South-Western
Summary
• National income accounting identities reveal
some important relationships among
macroeconomic variables.
• In particular, in a closed economy, national
saving must equal investment.
• Financial institutions attempt to match one
person’s saving with another person’s
investment.
© 2007 Thomson South-Western
Summary
• The interest rate is determined by the supply
and demand for loanable funds.
• The supply of loanable funds comes from
households who want to save some of their
income.
• The demand for loanable funds comes from
households and firms who want to borrow for
investment.
© 2007 Thomson South-Western
Summary
• National saving equals private saving plus
public saving.
• A government budget deficit represents
negative public saving and, therefore, reduces
national saving and the supply of loanable
funds.
• When a government budget deficit crowds out
investment, it reduces the growth of
productivity and GDP.
© 2007 Thomson South-Western