Chapter 19 - Saving, capital formation & financial markets
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Last updated 3:58 AM on 9/26/22
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38 Terms
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Life cycle
________ saving: saving to meet long- term objectives such as retirement, college attendance, or the purchase of a home.
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Bond
________: legal promise to repay a debt, usually including both the principal amount and regular interest, or coupon, payments.
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Balance sheet
________: list of an economic unit's assets and liabilities on a specific a date.
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Stock
________: measure that is defined at a point in time.
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Dividend
________: regular payment received by stockholders for each share that they own.
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Flow
________: measure that is defined per unit of time.
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Diversification
________: practice of spreading one's wealth over a variety of different financial investments to reduce overall risk.
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Lower taxes
________ on the revenues generated by capital.
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Mutual fund
________: financial intermediary that sells shares in itself to the public and then uses the funds raised to buy a wide variety of financial assets.
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Capital gains
________: increases in the value of existing assets.
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Capital losses
________: decreases in the value of existing assets.
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Assets
________: anything of value that one owns.
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Government budget
________ deficit: excess of government spending over tax collections (G- T)
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Stock
________ (or equity): claim to partial ownership of a firm.
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Saving
current income minus spending on current needs
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Saving rate
saving divided by income
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Wealth
value of assets minus liabilities
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Assets
anything of value that one owns
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Liabilities
debts one owes
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Balance sheet
list of an economic unit's assets and liabilities on a specific a date
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Flow
measure that is defined per unit of time
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Stock
measure that is defined at a point in time
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Capital gains
increases in the value of existing assets
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Capital losses
decreases in the value of existing assets
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Transfer payments
payments the government makes to the public for which it receives no current goods/services in return
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Life-cycle saving
saving to meet long-term objectives such as retirement, college attendance, or the purchase of a home
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Precautionary saving
saving for protection against unexpected setbacks such as the loss of a job or a medical emergency
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Bequest saving
saving done for the purpose of leaving an inheritance
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Bond
legal promise to repay a debt, usually including both the principal amount and regular interest, or coupon, payments
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Principal amount
amount originally lent
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Maturation date
date at which the principal of a bond will be repaid
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Coupon payments
regular interest payments made to the bondholder
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Coupon rate
interest rate promised when a bond is issued; the annual coupon payments are equal to the coupon rate times the principal amount of the bond
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Stock (or equity)
claim to partial ownership of a firm
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Dividend
regular payment received by stockholders for each share that they own
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Risk premium
rate of return that financial investors require to hold risky assets minus the rate of return on safe assets
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Diversification
practice of spreading one's wealth over a variety of different financial investments to reduce overall risk
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Mutual fund
financial intermediary that sells shares in itself to the public and then uses the funds raised to buy a wide variety of financial assets
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