ECON 2035 Study Guide - Quiz Guide: Bond Market, Adverse Selection, Risk Premium
Document Summary
Improve efficiency a: idle funds transferred to funds who expand plant and equipment, raise capital stock, raise output, enhance well being of consumers, allows consumer to better time purchases of major items; without major financial markets, consumers need to accumulate entire purchase cars or houses (etc. , gives consumers better way to hold part of wealth in form that are more liquid than real assets (houses, autos, land, transmit effects of monetary policy to economy, changes monetary policy affect yields & prices of assets and affects volume of lending and these in turn have affect overall level of spending, savers = suppliers of funds, lend funds to borrowers in return for promises of repayment of more funds in the future. It"s cheaper and eaiser: transaction costs: time, effort and money spent in carrying out transactions, direct finance: lenders, find borrowers, evaluate projects, negotiate interest rate, write contract (lawyer = 2987$, direct finance: borrowers.
