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Lesson 11: Circular Flow | Unit 2: Financial Markets Page: 8 of 22

Topic: Saving <=PAGE BACK | PAGE NEXT=>

Saving is a nonconsumption use of income, making a loan or supplying income to the financial markets in exchange for a legal claim.
  • The red financial markets box is a third set of aggregate markets.
  • The green flow is saving supplied to the financial markets. It is income diverted from the household sector.
Why save?
  • To get paid. Interest is the payment for using income.
  • Income is needed later more than now. Income is set aside this year to buy more production next year.
Saving does not disappear, it is income diverted away from the consumption flow and supplied, or loaned, to the financial markets.

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AGGREGATE DEMAND INCREASE, SHORT-RUN AGGREGATE MARKET

A shock to the short-run aggregate market caused by an increase in aggregate demand, resulting in and illustrated by a rightward shift of the aggregate demand curve. An increase in aggregate demand in the short-run aggregate market results in an increase in the price level and an increase in real production. The level of real production resulting from the shock can be greater or less than full-employment real production.

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Today, you are likely to spend a great deal of time flipping through the yellow pages wanting to buy either a green fountain pen or a handcrafted bird house. Be on the lookout for defective microphones.
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General Electric is the only stock from the original 1896 Dow Jones Industrial Average remaining in the current index.
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