Textbook Notes (369,133)
Canada (162,403)
Economics (708)
Chapter 23


5 Pages

Course Code
Economics 2152A/B
Bruce Hammond

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Chapter 23 Finance Saving and Investment Financial Institutions and Financial MarketsSaving is the source of funds that are used to finance investmentFinancing investment is crucial because investment in new capital makes the economy growThese funds are supplied and demanded in three types of markets loan markets bond markets and stock marketsPhysical capital is the tools instruments machines buildings and other items that have been produced in the past and that are used today to produce goods and services The funds that firms use to buy physical capital are called financial capitalThe key Canadian financial institutions are banks trust and loan companies credit unions and caisses populaires pension funds and insurance companies The Loanable Funds MarketHow investment is financed o YCST households use their income to buy consumption goods save and pay taxes o YCIGNX o So STIGNX o And ISTGNX o S is household private saving o TG is government saving or dissaving o NX is foreign saving o The sum of private saving S and government saving TG is called national savingThe nominal interest rate is the number of dollars that a borrower pays and a lender receives in interest in a year expressed as a percentage of the number of dollars borrowed or lentThe real interest rate is the nominal interest rate adjusted to remove the effects of inflation on the buying power of money The real interest rate is approximately equal to the nominal interest rate minus the inflation rateThe real interest rate is the opportunity cost of loanable fundsThe quantity of loanable funds demanded is the total quantity of funds demanded to finance investment the government budget deficit and international investment or lending during a given period
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