Saving, Investment, and the Financial System

These flashcards cover key concepts related to saving, investment, and the financial system as discussed in the lecture notes.

Financial Institutions

Institutions through which savers can directly provide funds to borrowers.

Financial Markets

Financial institutions through which savers can provide funds to borrowers.

Bond Market

A financial market where bonds are issued and traded.

Bond

A certificate of indebtedness that specifies the principal, date of maturity, and interest rate.

Debt Finance

The sale of bonds to raise money.

Stocks

Shares that represent a claim to partial ownership in a firm.

Equity Finance

The sale of stock to raise money.

Financial Intermediaries

Institutions that facilitate indirect funds provision between savers and borrowers.

Private Saving

Income remaining after households pay for taxes and consumption.

Investment

The purchase of new capital, such as equipment or buildings.

Loanable Funds

The market where savers supply funds and borrowers demand funds.

National Saving

The total saving in the economy, which equals private saving plus public saving.

Budget Surplus

When tax revenue exceeds government spending.

Budget Deficit

When government spending exceeds tax revenue.

Interest Rate

The cost of borrowing or the return on savings.

Supply of Loanable Funds

Fund supply from savers wanting to earn interest on deposits.

Demand for Loanable Funds

Fund demand from borrowers seeking investment capital.

Equilibrium Interest Rate

The interest rate that equates the supply and demand for loanable funds.

Public Saving

Tax revenue remaining after government spending.

Crowding Out

The reduction in private investment due to increased government borrowing.

Tax Incentives for Saving

Policies that encourage saving through tax benefits.

Investment Tax Credits

Tax benefits that promote spending on new capital.

Junk Bonds

High-risk bonds that pay higher interest rates due to the risk of default.

Principal

The amount borrowed in a bond agreement.

Date of Maturity

The date when the loan specified in a bond must be repaid.

Risky Bonds

Bonds with a high probability of default, typically offering higher interest rates.