Saving, Investment, and the financial system Flashcards
Financial system
Group of institutions in the economy that help to match one person’s saving with another person’s investment. Either financial market or financial intermediaries
Financial Markets
Financial institutions through which savers can directly provide funds to borrowers. ie bond market and stock market
Financial Intermediaries
Financial institutions through which savers can indirectly provide funds to borrowers. “institutions that stand between savers and borrowers” ie banks and mutual funds
medium of exchange
an item that people can easily use to engage in transactions. ie checks via banks.
Key numbers for stock watchers
price, dividend, and price-earnings ratio.
a high price earnings ratio
price of a corporation’s stock divided by the amount of the corporation earned per share over the past year.
High P/E ratio indicates the corporation’s stock is expensive relative to its recent earnings–either that people expect earnings to rise in future or that stock is overvalued.
Mutual Funds
an institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds.
They allow people with small amounts of money to diversity their holdings.
For this service, the company operating the mutual fund charges shareholders a fee, usually between .5 and 2% of assets each year.
GDP formula
y=C+I+G+NX
Closed vs open economies
interact or don’t interact with the world
national saving
the total income in the economy that remains after paying for consumption and government purchases
Public Saving + Private Saving
Y-C-NT+NT-G=Y-C-G
closed economy formula
y=C+I+G
private saving
income that households have left after paying for taxes and consumption
PrS=Y-C-NT
Public saving
tax revenue that the government has left after paying for its spending
PubS=NT-G
budget surplus
excess of tax revenue over government spending
Economics–difference between saving and investment
investment refers to the purchase of new capital, like equipment or buildings
