Savings and Investment

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SavingsandInvestment
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Investment

• IMPORTANT BECAUSE
• Adds to stock of capital
• Replaces old / obsolete capital stock
• Increases productivity
• Improves international competitiveness

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Investment

• SOURCES
• Personal savings
• Business savings
• Foreign savings

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Sources of Investment

• 1. Personal savings
• Personal disposable incomeNOT spent on
  consumption

Savings
PersonalDisposableIncome
Consumption
Taxes
TotalPersonalIncome
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Sources of Investment

• 1. Personal Savings determined by
• Disposable Income
• Consumer confidence
• Household assets
• Consumer debt
• Interest rates
• Taxation policy
• Stage of life

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Discussion Question

• In small groups, discuss how each of the
  following factors affect personal savings
• Disposable Income
• Consumer confidence
• Household assets
• Consumer debt
• Interest rates
• Taxation policy
• Stage of life

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Sources of Investment

• Personal Savings invested in
• Bank deposits
• GICs (guaranteed investment certificates)
• Stocks, bonds, mutual funds
• ? directly to businesses
• Pension fund contributions
• Mortgage principal payments

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Sources of Investment

• 2. Business savings
• also known as Retained Earnings
• Profits retained in a business after all
  expenses, taxes, and dividends have been paid

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Sources of Investment

• 2. Business savings

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Sources of Investment

• 3. Foreign savings
• Importing investment
• Includes individual investors and foreign
  businesses
• Foreign direct investment