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Ch. 13: Saving, Investment, and the Financial System
Terms in this set (22)
the sale of bonds to raise funds
the sale of stock
in the event that a company runs into financial difficulty, who gets paid first, bond holders or stock holders?
firms are obligated to pay off bondholders before giving anything to stockholders, however stockholders stand to gain more if a firm is profitable
a claim to partial ownership in a firm
a certificate of indebtedness
what determines the price of a stock?
the forces of supply and demand; if people expect a company to have unusually high profits in the future, demand for the stock increases, and its share price rises; an increase in the number of shares of stock a company issues represents an increase in the supply of shares, reducing the value of each share since the value of the company is split into smaller units
represents an average of a group of stock prices
what influences a bond's interest rate?
the tax treatment of the interest earned on a bond influences the bond's interest rate
formula for GDP in a closed economy
Y = C + I + G
in a closed economy, the GDP loves cigarettes (CIG)
formula for investment spending in a closed economy
I = Y - G - C
in a closed economy, most investment spending goes towards Young Gay Clubs
formula for national savings in a closed economy
S = Y - C - G
in a closed economy, savings is determined by Young Chinese Girls
another longer formula for national savings in a closed economy
Y = (Y - C - T) + (T - G)
in a closed economy, private+ public savings is determined by Young Canadian Teens who LOVE (+) TGs
the income that remains after households pay taxes and make consumption expenditures
the amount of tax revenue the government has left over after paying for its spending
when a government spend more than it collects in tax revenues (not enough money)
when the government collects more in tax revenue than it spends (more than enough money)
the income that remains after subtracting household consumption and government spending from the economy's total income
depositing unspent income in a bank, buying stocks or bonds with unspent income;
spending on new capital, such as machines, equipment, tools, or buildings. remember! spending on new residences is the one component of household expenditures that counts toward investment spending
where does the supply of loanable funds come from?
saving! supply comes from people who want to save and lend out some of their income; savers can lend directly by purchasing bonds in financial markets, or indirectly by depositing funds with financial intermediaries such as banks that use the deposits to make loans
deficits detract from..
national saving; since saving is the source of supply in the market for LF, reduction in public saving causes the supply of LF to shift to the left
the reduction in the level of investment that occurs when the government borrows to finance a budget deficit
What term means "making decisions based on what you believe is the best combination of costs and benefits"?
Investors' fears can become so powerful that increased movement on the stock exchange occurs, causing a financial panic.
*A company decides to decrease their prices and this causes their total revenue to remain the same. In this instance the company's product has
4 things that are not counted in GDP
Recommended textbook explanations
Krugman's Economics for AP*
David Anderson, Margaret Ray
Principles of Economics
N. Gregory Mankiw
Principles of Macroeconomics
N. Gregory Mankiw
Paul Krugman, Robin Wells
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