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ECN 204 Lecture : Chapter 8.docx

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School
Ryerson University
Department
Economics
Course
ECN 204
Professor
Eric Kam

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Document Summary

Chapter 8: saving, investment and the financial system. Financial system: group of institutions that helps match the saving of one person with the investment of another. Financial markets: institutions through which savers can directly provide funds to borrowers. Stock is a claim to partial ownership in a firm. Financial intermediaries: institutions through which savers can indirectly provide funds to borrowers; eg - banks. Mutual funds: institutions that sell shares to the public and use the proceeds to buy portfolios of stocks and bonds. Saving and investment in the national income accounts. Gdp is both total income in an economy and total expenditure on the economy"s output of g&s. Y = c + i + g + nx. In closed economy: y = c + i +g. Private saving: portion of households" income that is not used for consumption or paying taxes. = (y t c) + (t g)

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Related Questions

The economy's two most important financial markets are

A. the investment market and he saving market 
B. the bond market and the stock market
C. banks and the stock market.
D. financial markets and financial institutions

Banks are financial intermediaries because they

a.

 receive new Federal Reserve notes from the Fed and put them into circulation

b.

 bring together the two sides of the market-savers and borrowers

c.

 bring different savers into contact with each other

d.

 bring about the merger of smaller banks to make larger ones

e.

 resolve disputes between stockbrokers, mortgage companies, insurance agencies, and other financial institutions

Choose the statement that is incorrect.

A) A financial institution's net worth is the market value of what it has lent minus the market value of what it has borrowed.

B) If a financial institution's net worth is positive, the institution must be solvent and liquid.

C) A financial institution can be solvent but illiquid.

D) A financial institution is illiquid if it has made long-term loans with borrowed funds and is faced with a sudden demand to repay more of what it has borrowed than its available cash.