Saving/Investment Flashcards
Savings
depositing or lending money to borrowers; provides the funds for people who borrow
Investment
Borrowing money or business spending that comes in the form of borrowed money
three types of savings
buy bonds, buy stocks, and deposit money in the bank
three types of investments
sell bonds, sell stocks, and get a loan from the bank
do savers want high or low interest?
high interest rate, which means quantity saving increases
do investors want high or low interest?
low interest rate, which means quantity investment increases
difference between stocks and bonds?
when you sell a stock or bond you receive money; you pay back through ownership (stock) or through the money they gave you plus interest (bond)
stocks
certificate in exchange for the money you gave that says you get % of ownership of the company.
sell stock cause they don’t know when they can pay back
risky & higher return
dividends
Types of bonds
Treasury (federal) bond
Corporate bone -> riskier
paper
coupons
interest rates
the cost of borrowing money or the price you charge for lending money
why is savings curve upward sloping?
because as interest rate increase, quantity saving increases.
as interest rates decrease, quantity saving decreases.
why is investment curve downward sloping?
because as interest rates increase, quantity investment decreases.
as interest rates decreases, quantity investment increases.
why are we learning about savings and investments
because you need savings and investments for the determinists of productivity to exist
the link between investment and borrowing?
investing is spending on businesses through money they borrowed
why does an increase on interest rates not help the financial market?
surplus of savings and a shortage of investments
how can you increase savings on the financial market graph?
1) lowering interest income tax
2) lowering capital gains tax
3) lowering tax on dividends and coupons
(opposite will decrease saving curve)
increase sales tax savings go down ??
how can you increase investments on the financial market graph?
1) lowering tax on anything that has to do with borrowing
-lowering property taxes
(opposite will decrease investment curve)
National savings formula
S = (Y-T-C) + (T-G)
(Y-T-C) is private savings
(T-G) is public savings
private savings
(Y-T-C)
public savings
(T-G)
T=G
balanced budget
T>G
budget surplus
T<G
budget deficit
How to fix budget deficit
Print money
Sell bonds
Raise taxes
crowding out
budget deficit; the federal reserve need to sell more bonds to make up for the difference T<G ; interest rates go up so people buy it; negative so much savings we aren’t borrowing so quantity investment goes down
balanced budget
graph doesn’t shift
budget deficit
saving curve shifts to the left
interest rates increase
quantity investments decreased
budget surplus
saving curve shifts to the right
interest rates decrease
quantity investments increase
Coupons
periodic payments for holding a bonds
Dividends
periodic payments for holding a stocks
equations and variables to know
Y=C+I+G
S=I
S=(Y-T-C) + (T-G)
Y(GDP)
C(Consumption)
I(Investment)
G(Government)
S(Saving)
T(Taxes)
