Saving, Investment, and the financial system Flashcards Preview

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Flashcards in Saving, Investment, and the financial system Deck (31)
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1
Q

Financial system

A

Group of institutions in the economy that help to match one person’s saving with another person’s investment. Either financial market or financial intermediaries

2
Q

Financial Markets

A

Financial institutions through which savers can directly provide funds to borrowers. ie bond market and stock market

3
Q

Financial Intermediaries

A

Financial institutions through which savers can indirectly provide funds to borrowers. “institutions that stand between savers and borrowers” ie banks and mutual funds

4
Q

medium of exchange

A

an item that people can easily use to engage in transactions. ie checks via banks.

5
Q

Key numbers for stock watchers

A

price, dividend, and price-earnings ratio.

6
Q

a high price earnings ratio

A

price of a corporation’s stock divided by the amount of the corporation earned per share over the past year.
High P/E ratio indicates the corporation’s stock is expensive relative to its recent earnings–either that people expect earnings to rise in future or that stock is overvalued.

7
Q

Mutual Funds

A

an institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds.
They allow people with small amounts of money to diversity their holdings.
For this service, the company operating the mutual fund charges shareholders a fee, usually between .5 and 2% of assets each year.

8
Q

GDP formula

A

y=C+I+G+NX

9
Q

Closed vs open economies

A

interact or don’t interact with the world

10
Q

national saving

A

the total income in the economy that remains after paying for consumption and government purchases
Public Saving + Private Saving

Y-C-NT+NT-G=Y-C-G

11
Q

closed economy formula

A

y=C+I+G

12
Q

private saving

A

income that households have left after paying for taxes and consumption
PrS=Y-C-NT

13
Q

Public saving

A

tax revenue that the government has left after paying for its spending
PubS=NT-G

14
Q

budget surplus

A

excess of tax revenue over government spending

15
Q

Economics–difference between saving and investment

A

investment refers to the purchase of new capital, like equipment or buildings

16
Q

(I-PrS)+(G-NT)+(X-M)=

A

0

17
Q

Disposable income

A

C + PrS

18
Q

AE

A

=GDP

19
Q

3 ways to distribute income

A

Consumption spending, saving (PrS), and Taxes (NT = Taxes - transfers out).

20
Q

Market for loanable funds

A

market in which those who want to save supply funds to those who want to borrow to invest demand funds

21
Q

Loanable funds

A

all income that people have chosen to save and lend out, rather than use for their own consumption and to the amount that investors have chosen to borrow to fund new investment projects

22
Q

Source of the supply of loanable funds

A

saving

23
Q

Source of the demand for loanable fudns

A

investing

24
Q

Effect of a government deficit on the Market for loanable funds

A

Shift supply to the left and raises supply, raising the interest rate p565

25
Q

Effect of tax credits for investing

A

increases demand and increases interest rate.

26
Q

Effect of savings being tax-free

A

lower interest rates by shifting supply to the right

27
Q

If a reform of the tax laws encouraged greater saving…

A

the result would be lower interest rates and greater investment

28
Q

If a reform of the tax laws encouraged greater investment…

A

the result would be higher interest rates and greater saving.

29
Q

How d governments finance budget deficits

A

borrowing in bond market

30
Q

Crowding out

A

decrease in investment that results from government borrowing.

31
Q

Compounding

A

the accumulation of a sum of money in, say, a bank account, where the interest earned remains in the account to earn additional interest in the future.