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ECONOMOMICS > Third Set > Flashcards

Third Set Flashcards

1
Q

Bond

A

certificate of indebtedness
* date of maturity, when the loan will be repaid
*rate of interest
*principal - amount borrowed

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2
Q

Borrowing from the public

A

Used by large corporations, the federal government or state and local governments

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3
Q

Term

A

length of time until maturity

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4
Q

Credit Risk

A

probability of default
*probability that the borrower will fail to pay some of the interest or principal
*higher interest rates for higher probability of default
*U.S government bonds tend to pay low interest rates
*Junk bonds, very high interest rtes: issued by financially shaky corprtins

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5
Q

Taxable treatment

A

interest on most bonds is taxable income

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6
Q

Municipal bonds

A

issued by state + local governments
* owners are not required to pay federal income tax on the interst income
*lower interest rate

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7
Q

The stock market

A
  1. stock
  2. organized stock exchanges
  3. equity finance
  4. stock index
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8
Q

Stock

A

claim to partial ownership in a firm; a claim to the profits that a firm makes

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9
Q

organized stock exchange

A

stock prices: demand and supply

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10
Q

Equity finance

A

sale of stock to raise money

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11
Q

Stock index

A

average of a group of stock prices

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12
Q

Financial intermediaries

A

*savers can indirectly provide funds to borrows
*banks
*mutual funds

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13
Q

Banks

A
  1. take in deposits from savers
    2.make loans to borrows
  2. facilitate purchasing of goods and services
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14
Q

Banks: take in deposits from savers

A

banks pay interest

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15
Q

Bank: make loans to borrows

A

banks charge interest

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16
Q

banks: facilitate purchasing of goods and services

A

checks: medium of exchange

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17
Q

Mutual funds

A

-institution that sells shares to the public
-uses the proceeds to buy a portfolio of stocks and bonds
-advantages: diversification, professional money managers

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18
Q

Rules of national income accounting

A

Important identities

19
Q

R.O.N.I.A: identity

A

an equation that must be true because of the way the variables in the equation are defined
-clarify how different variables are related to one another

20
Q

Gross Domestic Product (GDP,Y)

A

total income = total expenditure

21
Q

Y=C+I+G+NX

A

Y= gross domestic product, gdp
c= consumption
i= investment
g= government purchases
NX= net exports

22
Q

Closed Economy

A

-Doesn’t interact with other economies
-NX = 0

23
Q

Open economy

A

-interacts with other economies
- nx not equal to zero

24
Q

Assume to closed economy: NX=0

A

Y = C+I+G

25
Q

National Saving (saving), s

A

total income in the economy that remains after paying for consumption and government purchases
Y-C-G=I
S= Y-C-G
S=I

26
Q

T = taxes minus transfer payments

A

S=Y-C-G
S=(Y-T-C)+(T-G)

27
Q

Private Saving

A

Y-T-C:
Income that households have left after paying for taxes and consumption

28
Q

Public saving, T-G

A

Tax revenue that the government has left after paying for its spending

29
Q

Budget Surplus: T-G> 0

A

Excess of tax revenue over governmentspending

30
Q

Budget deficit: T-G< 0

A

shortfall of tax revenue from governmentspending

31
Q

Accounting identity: S=I

A

Saving = investment

  • for the economy as a whole
    -one person’s savings can finance another person’s investment
32
Q

Market for loanable funds

A

Market
-those who want to save supply funds
-those who want to borrow to invest demand funds
-one interest rate
*return to saving
*cost of borrowing
Assumption: Single financial market

33
Q

Source of the supply of loanable funds

A

Saving

34
Q

Source of the demand for loanable funds

A

investment

35
Q

Price of a loan = real interest rate

A

*borrowers pay for a loan
*lenders receive on their saving

36
Q

As interest rate rises…

A

*quantity demanded declines
*quantity supplied increases

37
Q

Demand curve

A

slopes downward

38
Q

Supply curve

A

slopes upward

39
Q

Government policies…

A

can affect the economy’s saving and investment
i.e, saving incentives, investment incentives, government budget deficits and surpluses

40
Q

Saving incentives

A

affect supply of loanable funds
-increase in supply
*supply curve shifts right
-new equilibrium
*lower interest rate
*higher quantity of loanable funds
-greater investment

41
Q

Investment tax credit

A

affect demand for loanable funds
increase in demand
*demand curve shifts right
-new equilibrium
*higher interest rate
*higher quantity of loanable funds
*greater saving

42
Q

Crowding out

A

Decrease in investment

43
Q

Government budget deficit

A

interest rate rises; investment falls

44
Q

Government -budget surplus

A

increase supply of loanable funds
reduce interest rate
stimulates investment

ECONOMOMICS (6 decks)

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