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What are loanable funds?
Loanable funds refer to the funds available for lending in the financial market. They come from savings by households, businesses, and governments and are used by borrowers for investments.
How does the supply of loanable funds affect interest rates?
When the supply of loanable funds increases, interest rates tend to fall, as there’s more money available to lend. When the supply decreases, interest rates rise due to less money available for borrowing.
What is the relationship between interest rates and the demand for loanable funds?
When interest rates are high, the demand for loanable funds typically decreases because borrowing becomes more expensive. Conversely, lower interest rates encourage more borrowing.
What is a budget deficit?
A budget deficit occurs when a government's spending exceeds its revenue in a given period. This typically requires borrowing to finance the shortfall.
What is a budget surplus?
A budget surplus occurs when a government’s revenue exceeds its spending in a given period. The surplus can be used to pay down debt or be saved for future use.
What does GDP (Gross Domestic Product) measure?
GDP measures the total monetary value of all goods and services produced within a country over a specific time period, reflecting the economic health of a nation.
What are bonds?
Bonds are debt securities issued by corporations, municipalities, or governments to raise capital. Bondholders are paid interest over time and are repaid the principal at maturity.
What is the difference between stocks and bonds?
Stocks represent ownership in a company, while bonds are loans made to a company or government. Stockholders earn dividends based on company performance, while bondholders receive fixed interest payments.
What are mutual funds?
Mutual funds pool money from multiple investors to buy a diversified portfolio of stocks, bonds, or other securities. They are managed by professionals and offer diversification to individual investors.
How do stocks provide returns to investors?
Stocks provide returns through price appreciation (capital gains) and dividends. Capital gains occur when the stock price increases, and dividends are periodic payments made by companies to shareholders.
What factors influence investment decisions?
Investment decisions are influenced by factors such as interest rates, business expectations, government policies, economic conditions, and the level of risk associated with different investment options.
How does consumption impact the economy?
Consumption is a key driver of economic growth. When households spend money on goods and services, it increases demand, which leads to more production, employment, and income generation.
What is the relationship between savings and investment?
Savings provide the funds available for investment. Higher savings allow for more investment opportunities, which in turn can lead to economic growth by funding capital projects, businesses, and infrastructure.
