ECON 201 Study Guide - Midterm Guide: Fractional-Reserve Banking, Nominal Interest Rate, Real Interest Rate

• School: University of Maryland
• Department: Economics
• Course: ECON 201
• Professor: Naveen Sarna

Document Summary

Financial market- institution which savers directly provide funds to borrowers bonds are certificates of indebtedness. [length of time until bond matures, credit risk- probability that borrower will fail to pay back, bonds issued by gov pay lower interest rate b/c usually pay back: bonds w/ longer maturity= higher interest rate. Private saving- household"s income not used for consumption or paying taxes. Public saving- tax revenue left after gov spending. S = (y-t-c)+(t-g)= y c g. Closed economy doesn"t engage in international trade. Nx= 0 and y= c + i + g. National saving: i= y c g. Each unit sold is consumed, invest, bought by gov investment leads to the accumulation of capital which leads to increased labor productivity which leads to economic growth (which is a good thing). So having high amounts of savings is good for economic growth. Budget surplus= t > g in tax revenue gov spending. Budget deficit= g > t public saving is negative.