ECON 20B Chapter 26: Chapter 26
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ECON 20B Full Course Notes
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Definition: finical institutions through which savers can directly provide funds to borrowers. Promises to repay the amount borrowed in future ; with periodic payment of interest. Term - the length of time until maturity. Credit risk - the probability that the borrower will fail to pay some of the interest or principal. Tax treatment - how the tax laws treat the interest earned in the bond. Ex: a bond with higher credit risk will typically have higher interest rate. Ex: a bond with longer term will have a higher interest rate. Ex: a bond with tax advantage will generally pay a lower interest rate. Finical institutions through savers can indirectly provide funds to borrowers. Gdp, y = c + i + g + nx. Assume that it is a closed economy nx = 0. National savings = private savings + public saving.
