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42 Cards in this Set
- Front
- Back
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What is the 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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What are the components of the Financial Services Industry
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-Financial Markets
-Financial Intermediaries |
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What two categories of market fall under the Financial Market?
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Stocks
Bonds |
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What is the Financial Market?
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The institutions through which savers provide funds directly to borrowers.
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What are FInancial Intermediaries?
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Financial institutions through which savers indirectly provide funds to borrowers.
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What categories fall under Financial Intermediaries?
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Banking Firms
Securities and Mutual Funds Firms Insurance Firms |
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What is Stock?
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a claim to partial ownership of a firm and its profits
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The sale of stock to raise money is called what?
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Equity financing.
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What is equity financing?
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The sale of stock to raise money.
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Compared to bonds, stock offer what risks?
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higher risk of loss and higher potential returns.
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Which is more risky?
Stocks or Bonds |
Stocks
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What can you see in a newspaper stock table?
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Price per share
Volume of shares sold Divided paid to stockholders Price-earning ratio |
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What is the sale of bonds called?
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Debt finance
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What is a bond?
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a certificate of indebtedness that specifies obligations of the borrower to the holder of the bond
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What are the characteristic of a bond?
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Term
Credit Risk Tax Treatment |
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What is a Stock Index?
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The average of a group of stock prices.
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When was the Dow Jones Industiral Average stock index started?
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1896
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Municipal bonds are tax ___.
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exempt
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What information is provided in Newspapers about stocks?
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Price
Volume Dividend Price-earnings ratio |
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How can banks help accelerate the *velocity* of economic growth?
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by creating a medium exchange in the form of checks
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What is a Securities Firm?
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An institution that sells stocks and bonds to the public
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What is a mutual fund firm?
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An institution that sells shares to the public and then uses the proceeds to buy a diversified portfolio of stocks and bonds
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What is the equation for National Saving? (S)
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S = Y - C - G (assuming for a closed economy)
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Equation for National Saving?
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Private Savings + Public Savings
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What is National Saving?
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Total income after taxes, consumption, and government purchases
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If T > G, the government runs ___
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a budget surplus
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If G > T, the government runs ___
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a budget deficit.
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For the economy as a whole, Saving must be equal to what?
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Investment.
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What determines real interest rate?
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equilibrium of the supply and the demand for loanable funds.
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What are the Government Policies that affect Saving and Investment?
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-Saving Incentives
-Investment Incentives -Having a surplus or a deficit |
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What are Saving Incentives?
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By reducing taxes, households have a higher chance of investment and lower interest rate
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Tax decreases cause the supply of loanable funds to do what?
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Shift to the right
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Tax decreases cause the equilibrium interest rate to do what?
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Decrease
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Investment tax credits cause what?
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an increase in incentive to borrow from loanable funds
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Investment tax credits do what to loanable funds?
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Increase demand for loanable funds
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Investment tax credits do what to the demand for loanable funds?
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Shifts the demand curve to the right
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The result of Investment tax credits?
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Higher interest rate
Greater Saving |
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When a government reduces national saving by running a deficit, what happens?
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interest rate rises
investment falls |
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What is Crowding Out?
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a decrease in investment that results from government borrowing to finance a deficit
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What is money?
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the set of assets in an economy that people regularly use to buy goods and services from other people
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What are the three functions of money?
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medium of exchange
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unit of account
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store of value
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