Ch. 8 - Saving, Investment, + the Financial System Flashcards Preview

Economics > Ch. 8 - Saving, Investment, + the Financial System > Flashcards

Flashcards in Ch. 8 - Saving, Investment, + the Financial System Deck (27):
1

Financial Systems are...

groups that match savings and investments b/w ppl

2

Financial Markets are...

savers directly providing funds to borrowers (eg. Stock/Bond markets)

3

Financial Intermediaries are...

savers directly providing funds to borrowers (eg. banks, mutual funds)

4

Mutual Funds are...

shares sold to the public to allow purchase of stocks and bonds

5

GDP is...
formula...

total income + expenditure
y = c + i + g + nx

6

GDP in a closed economy is... (formula)

y = c + i + g

7

3 types of savings are...

1. Private
2. Public
3. National

8

Private Saving is...

household income not consumed or taxed
(Y-T-C)

9

Public Saving is...

tax revenue minus gov't spending
(T-G)

10

National Saving is...

private plus public savings
(Y - T - C) + (T - G)
-income not consumed or spent by gov't (Y - C - G)

11

Budget Surplus is

excess revenue after gov't spending

12

Budget Deficit is...

shortfall of tax revenue after gov't spending

13

investment is the purchase of stocks + bonds (t/f)

f

14

investment is the purchase of new capital (t/f)

t

15

Budget Deficits cause... (4)

1. Gov't Debt
2. Crowding Out
3. Vicious Circle
4. Virtuous Circle

16

Gov't Debt is

sum of all past deficits and surpluses by gov't.

17

"Crowding Out" is...

decr in investment resulting from gov't borrowing

18

Budget Deficits reduce growth rate (t/f) why?

-true b/c crowding out causes less investment which is key to L-T growth

19

Vicious Circle is...

where deficits reduce supply of loanable funds, increase interest rates, + discourage investment.

20

Circle of Viciousness is...

slow econ growth - lower tax revenue - higher spending on income support - higher budget deficits

21

Virtuous Circle is...

a surplus which increases supply of loanable funds, reduces interest rates + stimulates investment

22

Virtuous Circle looks like...

econ growing - higher tax revenue - less income support - higher budget surpluses

23

t/f - using private sector's savings to finance budget deficits decreases ability to invest in new capital

true

24

t/f - national saving is not the key to L-T economic growth

false - it is

25

Saving Incentives Cause...

increase in supply of loanable funds, reduces the eq'm interest rates and increases eq'm quantity of loanable funds

26

Investment Incentives Cause...

tax credit which increases demand for loanable funds. raises eq'm interest rates + increases eq'm quantity for loanable funds

27

Gov't Budget Deficits cause...

reduction in national saving + loanable funds supply. Increases eq'm interest rates + decreases eq'm quantity of loanable funds