Ch 13 Saving, Investment, and the Financial System Flashcards
consists of the institutions that help to match one person’s saving with another person’s investment
financial system
institutions through which a person who wants to save can directly supply funds to a person who wants to borrow.
financial markets
a certificate of indebtedness that specifies the obligations of the borrower to the holder of the bond
bond
state and local governments issuing of bonds
municipal bonds
bonds that carry a high level of default
junk bonds
represents ownership in a firm and is therefore a claim to the profits that the firm makes
stock
financial institutions through which savers can indirectly provide funds to borrowers
financial intermediaries
an institution that sells shares to the public and uses the proceeds to buy a selection or portfolio of various types of stocks and bonds
mutual fund
two advantages of mutual funds
1) diversification
2) access to the skill of professional money managers
a portfolio that tracks the composition and performance of an index
index funds
how does savings = investment?
Y = C + I + G + NX Imagine a closed economy Y = C + I + G Y - C - G = I This refers to national saving / saving S = Y - C - G S= I Savings = Investment
Or
S= (Y-C-T) + (T-G)
S = Private Saving + Public Saving
the amount that households have left after paying their taxes and paying for their consumption
private saving
the amount of tax revenue that the government has left after paying for its spending
public saving
an economic theory arguing that rising public sector spending drives down or even eliminates private sector spending
crowding out
How does saving and investment incentives affect interest rate and loanable funds?
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