Chapter 26

Chapter 26 was a confusing chapter with a lot of new info. The chapter talks about financial markets which allow money to move from savers to borrowers. this movement is done through, bonds, stocks, banks, and mutual funds. If an economy is closed then savings are an investment for the whole economy. The interest rate is dependent on the savings and investment. Savings are the supply and investments are the demand. To see how policies affect interest rates you most also take into consideration the supply and demand of loanable funds. A government budget deficit represents negative public saving which reduces national saving and the supply of loanable funds available to financial investment. This reduces the growth of GDP. War leads to higher taxes but not enough to pay for the war so it results in a budget deficit and increase in government debt. I give this chapter a 2/3. There was a lot of new info and it took a while to get a feel for the chapter.