Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
26 Cards in this Set
- Front
- Back
These are the two categories of financial institutions in the US economy.
|
What are Financial Markets and Financial Intermediaries?
|
|
What are the two most important financial markets in our economy
|
The bond market and the stock market.
|
|
What is a bond?
|
A bond is a certificate of indebtedness that specifies the obligations of a borrower to the holder of the bond.
|
|
What is the "date of maturity" of a bond?
|
This is the time at which the loan associate with the bond will be repaid.
|
|
What are the three most important characteristics of bonds?
|
1. The bond's term.
2. The bond's credit risk. 3. The bond's tax treatment. |
|
What is a perpituity?
|
This is a kind of bond ( issued by the British government ) that never matures.
|
|
What are municipal bonds?
|
These are bonds issued by state and local governments.
|
|
What is the advantage of municipal bonds?
|
Owners of these bonds are not required to pay federal tax on the interest income.
|
|
What is equity finance?
|
This kind of finance consists
of sale of stock. |
|
What is a stock index?
|
This is a value computed as an average of a group of stock prices.
|
|
What are two of the most important financial intermediaries?
|
Banks and Mutual Funds.
|
|
As a financial intermediary, what role does banks serve?
|
Banks provide a means for savers to indirectly provide funds to borrowers.
|
|
What is a mutual fund?
|
A mutual fund is an institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks, bonds, or stocks and bonds.
|
|
What is the appeal of mutual funds?
|
The main appeal of mutual funds is that they allow people with limited funds to diversify their investment.
|
|
What is a secondary appeal of mutual funds?
|
A secondary appeal of mutual funds is that they give "ordinary" people the benefit of professional money managers.
|
|
What is the formula that determines GDP?
|
Y=C+I+G+NX
GDP = Consumption + Investment + Government Spending + Net Exports |
|
What is the formula for GDP in a closed economy?
|
Y=C+I+G
|
|
In a closed economy what can be said about savings?
|
Savings = Investment
|
|
What is the formula for national savings ( disregarding taxes )?
|
S=Y-C-G
|
|
What is the formula for national savings taking taxes into account?
|
s= (Y-T-C) + (T-G)
|
|
How can the formula for savings be written in terms of public and private savings
|
S=(Y-C-T) + (T-G)
Y-C-T = Public Savings T-G = Private Savings |
|
When does the government run a budget deficit?
|
When G > T
|
|
What is the market for loanable funds.
|
The market for loanable funds is a single market that includes all of the savers and borrowers in an economy. This is a simplification. In practice there are many financial markets.
|
|
How would a tax incentive to encourage saving affect the market for loanable funds?
|
A tax incentive to encourage saving would affect the market for loanable funds by shifting the supply curve to the right.
|
|
How would a tax incentive to encourage investment affect the market for loanable funds?
|
A tax incentive to encourage investment would affect the market for loanable funds by shifting the demand curve to the right.
|
|
How does a government deficit affect the market for loanable funds.
|
A government deficit reduces the amount of money available for public investment/saving. This causes the supply curve to move to the left.
|