Chapter 27 and 28 Definitions: Saving and Investment and Finance
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15 Terms
Financial system
The group of institutions in the economy that help to match one person’s saving with another person’s investment.
Financial markets
Financial institutions through which savers can directly provide funds to borrowers.
Bond
A certificate of indebtedness.
Finance
The field that studies how people make decisions regarding the allocation of resources over time and the handling of risk.
Present value (PV)
The amount of money today that would be needed, using prevailing interest rates, to produce a given future amount of money.
Future value (FV)
The amount of money in the future that an amount of money today will yield, given prevailing interest rates.
Stock
A claim to partial ownership in a firm.
Financial intermediaries
Financial institutions through which savers can indirectly provide funds to borrowers.
Mutual fund
An institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds.
Private saving
The income that households have left after paying for taxes and consumption.
Public saving
The tax revenue that the government has left after paying for its spending.
Budget Surplus
Tax Revenue > Government Spending.
Budget Deficit
Tax Revenue < Government Spending.
Market for loanable funds
The market in which those who want to save supply funds and those who want to borrow to invest demand funds.
Crowding out
A decrease in investment that results from government borrowing.