Multiple Choice Questions Page 176 AND Problems and Applications Pages 176 177 problems 7 and 13

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Multiple Choice Questions, Problem, and Application
Question 1
According to the problem, David will be the shareholder while Max will be the bondholder. It is because bondholders are the lenders while shareholders are the owners. They are paid through sharing of profits while bondholders get paid through interests.
Question 7
The difference between savings and investment as defined by a macroeconomist is as follows; in the minds of economists and how they understand the two terms, investment and savings are supposed to be equal in the economy at equilibrium. Therefore, the term investment means the act buying of new capital which can include buildings and equipment. It is expected to bring returns or income from the sum put in to purchase the asset. For it to qualify as an investment, it must not add to the national economy as it is recognized as a saving rather than an investment. Therefore one can borrow a loan to invest.
Savings, on the other hand, are those sums that individuals keep in banks. They tend to occur when one has a more significant income than the spending. They then take the excess to the banks to save them for future use. Through this, they add money to the national economy. This is where the difference between investment and savings comes in that, in savings money is inserted into the economy in one way or another. While an investment, one can borrow loan from savings gathered from other people into these financial institutions.

Then put them into the invest and later pay the mortgage with interest.
My family took out a mortgage to buy a new house would be categorized as an investment since when one buys a house, he/she consumes rather than saving. Secondly, when one uses $200 paycheque to purchase stock in Bombardier, it would be considered as saving this is because through the bonds one would earn through interest from the bonds.
Question 13.
Private saving is that amount of household income that is left after paying taxes and paying for their consumption. Private savings for an economy as a whole is always equal to investment. Reducing taxes increases household income which increases their savings as well as expenditures. Increase in savings results to an increase in investments. The government budget is when money spent on expenditure by the government is more than what it obtains from taxes. The public savings are negative when the government runs a deficit budget. Reducing government budget deficit results to an increase in investment since the government spends less than they receive from tax revenue. The rest of the money is put aside for investment purposes.
Implementing whether to reduce taxes on private savings or reduce the government budget deficit depends on the perception of the policymakers and the appropriate size of the government rather than pure economics. If the feeling is that there are many unmet social and infrastructure needs, the recommendation is to increase government expenditure which in turn increases investment.
As a household, one has to know whether the amount left after consumption and deduction of government taxes can be used for investment. If they realize that the amount left cannot be used for investment, then they can know the policy that is suitable, for instance, if the money left after consumption and deduction of taxes is little then it is advisable to reduce takes on private savings. This increases the income for the household that in turn increases private savings. Increase in private savings gives individuals more options to increase their investment.

Works Cited
Khan Indian Financial System 5E. Tata McGraw-Hill Education, 2006.