Savings, Investment, and the Market for Loanable Funds

These flashcards cover key vocabulary terms and concepts related to savings, investment, and the economics of loanable funds.

Liquidity

The ease with which an asset can be converted into cash without significant loss of value.

Financial Intermediation

The process by which financial institutions pool funds from savers and lend them to borrowers, improving economic efficiency.

Public Savings

Savings by the government, calculated as tax revenue minus government spending.

Private Savings

Savings by households and firms, calculated as income minus taxes and consumption.

National Savings

The sum of public and private savings, typically used to fund investments.

Federal Deposit Insurance Corporation (FDIC)

A U.S. government agency that insures deposits in banks to maintain public confidence in the financial system.

Opportunity Cost of Funds

The potential return from the next best investment.

Crowding Out

The reduction in private investment due to increased government borrowing.

Ricardian Equivalence

The theory that government deficits do not affect demand as people save more for expected future tax increases.

Expected Value

The probability-weighted average of all possible outcomes.

Asymmetric Information

A situation where one party has more or better information than another, often leading to poor decision-making.

Idiosyncratic Risk

Risk specific to an individual asset, which can be reduced through diversification.

Efficient Markets Hypothesis (EMH)

The theory that stock prices reflect all available information, categorized as weak, semi-strong, or strong form.

Technical Analysis

A method of predicting future prices based on past price patterns.

Compound Interest

Interest calculated on the initial principal and also on the accumulated interest from previous periods.