Saving, Investment, and the Financial System

This chapter discuses the financial system, which is the group of institutions in the economy that help to match one person's savings with another person's investment Financial markets are basically where both the savers and borrowers interact and it includes the bond and stock markets. It talks about the difference between a bond and a stock. A bond is basically a loan that has a date by which it will be payed back with interest rate. A stock is an investment in which the lender owns a part of the company that is the borrower, and it owns a portion of all the profits. The chapter also talks about important identities which include privte saving, public saving, budget surplus, and budget deficit. Investment refers to the purchase of a new capital, like buildings or equipment. It also introduces the topic of the market for loanable funds which is the market in which those who want to save supply funds and those who want to borrow to invest demand funds.