ECN 506 Lecture Notes - Discounting, Tax Rate, Gold Standard
25 Feb 2014
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Note: here we discuss the financial system: healthy leads to economic growth, unhealthy leads to problems, the financial system and economic growth, eg. If the financial system is not efficient leads to no economic growth: what happens when the financial system works. Note: however when the system breaks down: asian crisis- asian flu (mid 1990s) Huge investment in real estate (value increases). October 1997 huge withdrawal of funds by foreigners. #2: saving + loan crisis in 1980"s (canada) Inflation rate was high so interest rates rose as well. This meant that s&l institutions had to pay high interest rates/amounts on deposit accounts, but their long- term mortgage loans were fixed at low interest rates. As a result, the s&ls lost huge amounts of money. Thus, the financial system can fail if financial intermediaries do not transfer funds efficiently. Financial institutions: borrow short (current interest rates, lend long (interest revenue)(fixed interest rates)
