Macroeconomics Chapter 7 7: Finance, Saving, and Investment

A set of vocabulary flashcards covering key concepts from Chapter 7 of Macroeconomics, focusing on finance, saving, and investment.

Financial Markets

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

Financial Institutions

Firms that operate in the markets for financial capital, acting as both borrowers and lenders.

Physical Capital

The tools, instruments, machines, and buildings used to produce goods and services.

Financial Capital

Funds that firms use to buy physical capital, including cash, bonds, bank loans.

Gross Investment

Total amount spent on new capital purchases and replacing depreciated capital.

Net Investment

Change in quantity of capital, calculated as Gross Investment minus Depreciation.

Wealth

The value of all assets that a person or entity owns, increasing with capital gains.

Saving

Income not spent on taxes or consumption; contributes to wealth accumulation.

Loan Markets

Financial markets where loans are made and borrowed.

Bond Markets

Markets where bonds are issued and traded, representing borrowed money to be repaid at a later date.

Stock Markets

Markets where shares of public companies are bought and sold.

Capital Gains

Increase in the market value of assets, indicating a rise in wealth.

Capital Losses

Decrease in market value of assets, indicating a decline in wealth.

Real Interest Rate

Nominal interest rate adjusted for inflation, representing the actual cost of borrowing.

Nominal Interest Rate

The stated interest rate on a loan, not adjusted for inflation.

Time Value of Money

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

Present Value

Current worth of a future sum of money or stream of cash flows given a specified rate of return.

Future Value

The amount of money an investment will grow to over a period of time at a given interest rate.

Market Risk

Risk associated with fluctuations in market prices, including asset prices and interest rates.

Financial Risk

The risk a financial institution faces regarding insolvency and liquidity.

Supply of Loanable Funds

The relationship between quantity of loanable funds supplied and the real interest rate.

Demand for Loanable Funds

The relationship between the quantity of loanable funds demanded and the real interest rate.