ECO 1102 Lecture 6: Chapter 8 - Saving, Investment, and the Financial System

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ECO 1102 Full Course Notes
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ECO 1102 Full Course Notes
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There are various ways for you to finance capital investment: Borrow the money, perhaps from a bank or from a friend or relative. Convince someone to provide the money for your business in exchange for a share of your future profits. Financial system: the group of i(cid:374)stitutio(cid:374)s i(cid:374) the e(cid:272)o(cid:374)o(cid:373)(cid:455) that help to (cid:373)at(cid:272)h o(cid:374)e perso(cid:374)(cid:859)s sa(cid:448)i(cid:374)gs (cid:449)ith a(cid:374)other perso(cid:374)(cid:859)s i(cid:374)(cid:448)est(cid:373)e(cid:374)t. Saving and investment are key ingredients to long-run economic growth. When a country saves a large portion of its gdp, more resources are available for i(cid:374)(cid:448)est(cid:373)e(cid:374)t i(cid:374) (cid:272)apital, a(cid:374)d higher (cid:272)apital raises a (cid:272)ou(cid:374)tr(cid:455)(cid:859)s produ(cid:272)ti(cid:448)it(cid:455) a(cid:374)d li(cid:448)i(cid:374)g sta(cid:374)dard. Financial institutions can be grouped into two categories: Financial markets: financial institutions through which savers can directly provide funds to borrowers. Bond: a certificate of indebtedness that specifies the obligation of the borrower to the holder of the bond. Debt finance: the sale of a bond to raise money.

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