Ch26SavingInvestmentFinancialSystem储蓄投资和金融系统.ppt

Effect of govern’t budget deficit Government budget deficits When government reduces national saving by running a deficit, the interest rate rises and investment falls. Crowding out: the fall in investment by households and firms when govern’t borrow money to finance its budget deficit. Govern’t budget surpluses A budget surplus increases the supply of loanable funds, reduces the interest rate, and stimulates investment Principle of Economics Macroeconomics By dersen.guo@ Course Outline Chapter 26 Saving, Investment, and the Financial System How to finance your own start-up? Financial Institutions in U.S. Economy Saving and Investment in the national income accounts The Markets for Loanable Funds How to finance your start-up? Your own savings Borrowings from banks Finance from others The Financial System The financial system: 4 components Comprised of Institutions Function: Match saving with investment. Whose savings? Who invests? Financial Institutions in the U.S. Economy Two big categories: Financial markets: the institutions through which savers can directly provide funds to borrowers. Financial intermediaries: financial institutions through which savers can indirectly provide funds to borrowers. Financial Markets Intermediaries Financial Markets Stock Markets Bond Markets Financial Intermediaries Banks Mutual Funds The Bond Market A bond is a certificate of indebtedness that specifies obligations of the borrower to the holder of the bond. Categories: Government Bonds Municipal Bonds Corporate Bonds Characteristics of a Bond Term: The length of time until the bond matures. Also called Maturity. Credit Risk: The probability that the borrower will fail to pay some of the interest or principal. Tax Treatment: The way in which the tax laws treat the interest on the bond. Municipal Bonds The Stock Markets Stock represents ownership in a firm and is therefore, a claim to the profits that the firm makes. The sale of stock to raise money is called equity fina