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29 Cards in this Set
- Front
- Back
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def of financial system
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the group of institutions
in the economy that help to match one person's saving with another person's investment |
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2 categories of Financial Institutions:
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(1) Financial Markets, (2) Financial Intermediaries
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def of financial markets
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savers can directly provide funds to borrowers
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2 examples of financial market
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stocks and bonds
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4 features of bonds
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principle, date of maturity, interest payments, interest rate
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Equity financing:
debt financings: |
sale of stock
sale of bonds |
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def of financial intermediaries
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savers can indirectly provide funds to borrowers
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2 examples of intermediaries
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banks and mutual funds
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def of mutual fund
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institution that sells shares to the public and uses the proceeds to buy a portfolio of various stocks and/or bonds
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Where can savers put their funds?
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--purchasing bonds or stocks
--in banks --purchasing shares in mutual funds |
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Where can borrowers obtain funds?
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--sell bonds or stocks
--loans through banks --sell stocks or bonds to mutual funds |
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National Saving =
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S = Y - C – G
Private Saving + Public Saving S = I |
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Private Saving =
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Y – C – T
income HH have after paying taxes and their C |
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Public saving =
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T - G
tax revenue gov has after paying for its spending |
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Budget surplus:
budget deficit: |
T-G
G-T |
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What economists mean by “saving” and “investment”
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saving is putting money into a bank, buy a bond or stock or shares in mutual funds
investing is purchase of new K |
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where supply of loanable funds comes from:
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Private and public savings
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what the vertical and horizontal axis' are on supply curve
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Vertical: real interest rate
Horiz: dollar amt of funds |
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why supply curve is positively sloped
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savers will always want to save more when the interest rate is higher
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Who borrows funds for the demand curve for LF
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anyone who wants to borrow for investments
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why is the demand curve for LF negatively sloped?
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if interest rates increase, people want to borrow less
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def of capital gains tax
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less taxes taken from selling assets at so firms will want to increase investment for new assets
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IRA
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Individual Retirement Account that has tax advantages because income deposited into these accounts is not taxed until it is withdrawn at retirement and interest earned on the accounts is not taxed
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def of consumption tax
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taxes taken from everything you buy
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def of corporate profit tax rate
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taxes taken from profits corporate make from their investments
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def of investment tax credit
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lowers cost of everything that is invested
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6 factors that shift the supply curve for LF
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1,capital gains tax rate
2,inc. max for IRA 3,income tax rate 4,replacing w/ consumption tax 5,expectations of future income 6, governments spending |
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3 factors that shift the demand curve for LF
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1,corporate profit tax rate
2,investment tax credit 3,firms expectations about future business |
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Definition of crowding out
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a decrease in investment that results from government borrowing
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