ECN 203 Lecture Notes - Lecture 13: Capital Market, Interest Rate, Credit Risk
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Document Summary
C represents household purchases of goods and services. Real gdp (real income), wealth and consumer confidence. I consists of purchases of physical capital (equipment) and new housing. Demand (d i ): represents the attitudes of borrowers of financial capital. Role of financial intermediaries: banks and financial institutions that facilitate the exchange of capital. Q : amount of capital exchanged (borrowed) = level of investment (i * ) r * : interest rate in ltcm. Interest rate (r) rate of return for lenders changes in r causes move along s positive relationship implies s is upward sloping. Causes for shifts in s: capital lent: lenders want to charge more/less r at a given level of, entry/exit of funds. S of supply: shift variables---: lenders want to charge more/less r at given level of capital. Default risk: affects rate charged to borrower. Term of loan: longer terms pose more risk due to waiting and inflation.
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