Introduction to Finance

165
CHAPTER 
7
Savings and Investment 
Process
L E A R N I N G O B J E C T I V E S
After studying this chapter, you should be able to do the following:
LO 7.1 
Identify and describe the major components of the gross domestic product (GDP).
LO 7.2 
Describe the principal sources of federal government revenues and expenditures.
LO 7.3
Explain how savings are created and describe the major sources of savings in the 
United States.
LO 7.4 
Identify and describe the factors that aff ect savings.
LO 7.5
Describe major capital market securities that facilitate the savings and investment 
process.
LO 7.6
Describe the types of mortgage loans available to individuals and how the mortgage 
markets facilitate home ownership. 
LO 7.7 
Discuss the role of individuals in the 2007–08 fi nancial crisis.
W H E R E W E H A V E B E E N . . .
Part 1 of this book introduced you to how the U.S. fi nancial system works. In Chapter 1 you 
learned about the role of fi nance and were able to answer the question, what is fi nance? 
Chapter 2 provided you with information about the development of the U.S. monetary system, 
and Chapter 3 covered the importance of commercial banks and other fi nancial institutions in 
helping the fi nancial system operate smoothly. In Chapter 4 you learned about the Federal 
Reserve System and its monetary policy functions and instruments. After reading Chapter 5, 
you should have a better understanding of who the U.S. policy makers are and how they carry 
out monetary policy, fi scal policy, and debt management to achieve the nation’s economic 
objectives. Chapter 6 covered how the international monetary system developed, factors that 
aff ect currency exchange rates, and the fi nancing of international trade.