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Chapter 23 Finance, Saving, and Investment (Financial institution (Mutual…
Chapter 23 Finance, Saving, and Investment
Capital and investment
Gross investment
the total amount spent on purchases of new capital and on replacing depreciated capital.
Depreciation
The decrease in quantity of capital that results from wear and tear and obsolescence
Net investment
the change in the quantity of capital
The Loanable Funds Market
Equilibrium in the Loanable Funds Market
Changes in Demand and Supply
The Demand for Loanable Funds Curve
A rise in the real interest rate decreases the quantity of loanable funds demanded
A fall in the real interest rate increases the quantity of loanable funds demanded
The Supply of Loanable Funds
The real interest rate
Disposable income
Expected future income
Wealth
Default risk
The Demand for Loanable Funds
The real interest rate
Expected profit
The Supply of Loanable Funds Curve
A rise in the real interest rate increases the quantity of loanable funds supplied
A fall in the real interest rate decreases the quantity of loanable funds supplied
Government in the Loanable Funds Market
A government budget deficit increases the demand for funds
A government budget surplus increases the supply of funds
Financial Markets and Financial Institutions
Finance and money
Finance
How households and firms obtain and use financial resources and how they cope with the risks that arise in this activity.
Money
How households and firms use it, how much of it they hold, how banks create and manage it, and how its quantity influences the economy.
Physical capital and financial capital
Physical Capital
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.
Financial Capital
The funds that firms use to buy physical capital
Financial Capital Markets
Bond markets
Stock markets
Loan markets
Financial institution
Mutual funds
Pension funds
Credit Union and Caisses Populaires
insurance companies
Trust and loan companies
Bank
Funds that Finance Investment
Government budget surplus (T – G)
Borrowing from the rest of the world (M – X)
Household saving S