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16 Cards in this Set
- Front
- Back
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Financial Market
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Financial institutions trhough which savers provide funds to borrowers
2 Most important F.M = Bond and stock |
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saving and investment
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Key ingredients to long run ecnomy
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Financial system
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The group of institutions in the ecnomy that help the match one person' saving with another person's investment
2 kind: F.M and Financial intermediaries |
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Bond Market
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Bond: a certificate of indepteness that specified the obligation of the borrowers to the holer of the bond
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Stock Market
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Represents ownership in a firm and is a claim to its profit
(higher risk) |
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Financial intermediaries
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Financial institution through which savers can indirectly provide funds
1-Banks 2-Mutual Funds |
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National saving
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Private saving + Pulic saving (Budget surplus)
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Market for loanable funds
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Market in which those who wants to save supply funds and those who want to borrow to invest demand funds
Loanable funds: All income that people have chosen to save and lend out |
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3 policies of the market of Loanable funds
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1) Saving incentives
2) Investment incentives 3) GVT budget deficits and surpluses |
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Explain why mutual fund is likely to to be a less risky purchase than an individual stock.
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A mutual fun is diversified. When one stock in the fun is performing poorly, it is likely that another stock is performing weel.
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Which is likely to give a greater rate of return, a chequing deposit at a bank or the purchase of a corporate bond. Why?
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A corporate bond will likely give a greater rate of return because the bond is riskier, and because direct lending through a financial market has fewer overhead costs than indirect lending through intermediary.
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What is the difference between debt finance and equity finance? Provide an exemple.
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Dept finance is borrowing, sush as when a firm sells a bond.
Equity finance is taking on additional owners of the firm, such as when a firm sells stock. |
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What is meant by the words saving and investment in the national income accounts?
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Saving is what remains after consumption and gvt purchases
Investment is the purchase of equipment and structures. In casual conversation, savingis what remains of a person's income afer consumption, and investment is the purchase of stocks and bonds. |
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In a closed economy, why can investment never exceed saving?
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Investment never exceed saving in a closed economy because saving is the GDP left over after consumption expenditures and gvt purchases, and this is the limit of the income avaible for purchasing equipment and structures
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what is meant by vicious circle?
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A vicious circle happens when budget deficits increase interest rates, discourage investment, and slow economic growth. The slower growth leads to lower tax revenues, resulting in even higher budget deficits.
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What is the difference between financial markets and financial intermediaries?
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In a financial market, savers len directly to borrowers. Through financial intermediaries, savers lend to an intermediary who then lends to the borrower.
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