change in saving to the change in income. The sum of MPC and MPS for any change in disposable income must always be one. As households save a portion of their income into the financial market, the financial market distributes to households interest accrued on the money saved. The financial market is a market that trades financial assets. Financial assets are the legal claims on the real assets in our economy including corporate stocks and bonds, government securities, and money. Without financial markets it would be impossible to accumulate the funds needed for investment in capital projects. Firms or businesses employ factors of production, which they obtain from households through the factor markets in exchange for factor payments. They use factors to produce goods and services, which are sold to households and the government sector through the goods and services markets. The revenue from these sales goes to households as factor payments or to the government as taxes. The government sector purchases output from firms through the goods and services markets, financing these purchases by tax collections. ...
