ECON 112 Lecture Notes - Lecture 13: Loanable Funds, Tax Credit, Real Interest Rate
22 Oct 2015
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Saturday, october 17, 2015. Saving, investment, and the financial system. Group of institutions in the economy. That help match one person"s saving with another person"s investment. Moves the economy"s scarce resources from savers to borrowers b. c. d. Savers can directly provide funds to borrowers. The stock market i. ii. i. ii. i. ii. iii. iv. v. Date of maturity, when the loan will be repaid. Rate of interest, paid periodically until the date of maturity. Used by large corporations, the federal government, or state and local governments. Term: length of time until maturity. A few months, 30 years, perpetuity. Long- term bonds are riskier than short- term bonds a) Long- term bonds usually pay higher interest rates. Credit risk: probability of default. Probability that the borrower will fail to pay some of the interest or principal. Issued by financially shaky corporations. Higher interest rates for higher probability of default. U. s. government bonds tend to pay low interest rates.
