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ECON 1BB3 (535)
Lecture 13

Macroeconomics Lecture 13

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Department
Economics
Course
ECON 1BB3
Professor
Bridget O' Shaughnessy
Semester
Fall

Description
ECON 1BB3- LECTURE 13 (Chapter 7) What do the terms “saving” and “investment” mean to an economist? - To an economist investment is purchases of new physical capital (ie. Factories) - Investment does not mean purchasing stocks and bonds - Financial institutions 1) Financial markets  Bond Market  Loan  When you buy a bond you are making a loan to a company or a government  issues by Large business, governments  Pay rate of interest which depends on term (length of term) and risk  Higher interest paid for longer term  Higher risk bonds pay higher interest rate  Stock market  When you are purchasing a stock you are purchasing part ownership of the firm  You might one to do this: i) Profit (dividends) – if you own part of the firm when that firm makes profit you wil get$$ ii) Capital gain- value of stock can go up depending on supply and depend; you pay $5 for stock can sell it for more  Risk of capital loss  The return on stocks is greater than bonds because: i) Riskier- potential for capital loss ii) Bankruptcy laws- if a company goes bankrupt bondholders are paid before stock holder 2) Financial Intermediaries  Banks  Provides loans  Deposits from savers  Mutual funds  Peopl
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