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ECON 1BB3 (535)
Lecture

1BB3 Notes Chapter 8.docx

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

Description
Lecture # Chapter 8 Macroeconomics 1BB3 Date: 10/10/2012 Saving, Investment and Financial System Financial Institutions: 1. Financial Markets. (Directly link borrowers and savers) • Bond Market • Loans • Large businesses, governments • Interest is determined by term and risk of the bond. Increase in length and risk raises interest rate. • Stock Market • Astock is not a load unlike the bond market. Rather, you are a part of that company. • Ownership.Acompany might make a profit. • Profit (Dividends) or capital gain/loss • The return on stocks tends to generally be greater than bonds because of the risk endured and bankruptcy laws, which adds more risk for stockholders. 2. Financial Intermediaries (Indirect link between borrowers and savers) • Banks • Provide loans • Deposit from savers • Mutual funds • People with small amounts of money to buy stocks together Saving and Investment • National income accounting identity o Y = C + I + G • Private Saving: o Sp = Y(income) – T(Tax) – C (consumption) o Positively
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