Page 539 - The Principle of Economics

SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM
Imagine that you have just graduated from college (with a degree in economics, of course) and you decide to start your own business—an economic forecasting firm. Before you make any money selling your forecasts, you have to incur substantial costs to set up your business. You have to buy computers with which to make your forecasts, as well as desks, chairs, and filing cabinets to furnish your new office. Each of these items is a type of capital that your firm will use to produce and sell its services.
How do you obtain the funds to invest in these capital goods? Perhaps you are able to pay for them out of your past savings. More likely, however, like most en- trepreneurs, you do not have enough money of your own to finance the start of your business. As a result, you have to get the money you need from other sources.
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IN THIS CHAPTER YOU WILL . . .
Learn about some of the important financial institutions in the U.S. economy
Consider how the financial system is related to key macroeconomic variables
Develop a model of the supply and demand for loanable funds in financial markets
Use the loanable- funds model to analyze various government policies
Consider how government budget deficits affect the U.S. economy