Principles of Macroeconomics - Chapter 13
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- 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 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.