Financial Institutions-HW Chapter 1-#4
Chapter 1: Questions to help you Study # 4
4) The term savings differs depending on what type of unit in the economy is doing the
saving. For households, savings are what are left from current income after current
consumption expenditures and tax payments are made. In the business sector, savings
include current earnings retained inside business firms after payment of taxes,
stockholder dividends, and other cash expenses. Government savings arise when there is
a surplus of current revenues over current expenditures to a government’s budget.
Investment generally refers to the acquisition of capital goods, such as buildings and
equipment, and the purchase of inventories of raw materials and goods to sell. For a
business firm, expenditures on capital goods and inventories are investment expenditures.
