Chapter 26, titled ‘Saving,
Investment, and the Financial System’, focuses on the production of output in
the long run. It specifically addresses the market for saving and investment in
capital. Chapter 26 also shows how saving and investment are coordinated by the
loanable-funds market. It teaches how to connect the lending of savers to the
borrowing of investors. Financial institutions in the U.S economy include the
bond market and the stock market. Financial intermediaries are financial
institutions through which savers (lenders) can indirectly loan funds to
borrowers. The two most important financial intermediaries are banks and mutual
funds. The chapter also uses different national income identities to show the
relationship between saving and investment. Long story short, saving is equal
to investment. The last thing the chapter talks about is the market for
loanable funds. The supply of loanable funds comes from national saving. The demand
for loanable funds comes from households and firms.
Overall, I would give this chapter
a difficulty rating of 1 out of 3. The ideas presented in this section were
pretty easy to grasp because saving and investing is something seen in everyday
life and is included in daily conversation so it seems more relatable than
other concepts we have previously learned. Something I would like to further
discuss in class is why consumption loans are not included in the supply of
loanable funds. I would also like to delve more into the topic of financial intermediaries.
For instance, what’s another example of a financial intermediary other than a
bank?
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