Chapter 8 Flashcards
What is a financial system?
Institutions that help match savers with investors
People who have money with people who need the money
What are 2 types of financial institutions?
Financial markets
Financial intermediates
What are Financial Markets and Financial Intermediaries?
Markets- Financial institutions where savers can directly provide funds to borrowers-stocks and bonds
Intermediaries- Banks
What groups issue bonds?
Corporations, federal/provincial/municipal governments
What are characteristics of a bond?
Term- length of time before bond matures (up to 30 years), short term bonds are less risky, less reward
Interest rate- per annum returns on investment/loan
What is a Stock?
A stock is an issuance of ownership of a company for money
What are two types of financial intermediaries?
Banks
Mutual Funds
What do financial institutions do?
They are financial institutions that bring borrowers and savers together
What are mutual funds?
An institution that sells shares to the public and uses proceeds to purchase a portfolio of stocks, bonds, etc.
What are the primary roles of banks?
-Take deposit from savers
-Make loans to people who want to borrow
-Make money by investing
-Make money by charging lower interest rate to savers and higher interest rates to borrowers
What is the closed economy model for calculating GDP
Y=C+I+G
What is savings equal to?
Investment
What are the formulas for private and national savings
national
S=(Y-C-T)+(T-G)
Private
S=Y-C-T
Public
S=(T-G)
Define
T > G
and
T < G
budget surplus
budget deficit
Define deficit and debt?
Deficit is annual
Debt is the sum of all deficits
