Macroeconomics Lecture Notes on Finance, Saving, and Investment

These flashcards cover key concepts from the lecture on finance, saving, and investment within macroeconomics, focusing on definitions and relationships in financial markets.

Financial Markets

Platforms where financial securities, such as stocks and bonds, are bought and sold.

Physical Capital

The tools, instruments, machines, buildings, and other items that have been produced in the past and that are used today to produce goods and services.

Financial Capital

The funds that firms use to buy physical capital, such as cash, bonds, bank loans, and lines of credit.

Gross Investment

The total amount spent on purchases of new capital and on replacing depreciated capital.

Net Investment

The change in quantity of capital, calculated as gross investment minus depreciation.

Wealth

The value of all assets that people own, including savings, homes, and other valuable items.

Saving

The amount of income that is not paid in taxes or spent on the consumption of goods and services.

Loan Markets

Financial markets where loans are issued and demanded.

Bond Markets

Financial markets where bonds are issued and traded.

Stock Markets

Financial markets where shares of publicly-held companies are bought and sold.

Financial Institution

A firm that operates as both a borrower and a lender in financial capital markets.

Net Worth

The total market value of what a financial institution has lent minus what it has borrowed.

Nominal Interest Rate

The monetary cost of borrowing expressed as a percentage of the loan amount.

Real Interest Rate

The nominal interest rate adjusted for inflation, representing the true cost of borrowing.

Time Value of Money

The concept that money available now is worth more than the same amount in the future due to its earning potential.

Loanable Funds Market

The aggregation of all financial markets for the trading of loans.