PRESENT VALUE MEASURING THE TIME VALUE OF MONEY

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PRESENT VALUE  MEASURING THE TIME VALUE OF MONEY Imagine that someone offered to give you $100 today or $100 in 10 years, Which would you choose? This is an easy question. Getting $100 today is better because you can always ‘deposit the money in a bank, still have it in 10 years, and earn interest on the […]

QUESTIONS FOR REVIEW

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QUESTIONS FOR REVIEW 1. What is the role of the financial system? Name and describe two markets that are part of the financial system in the U.S. economy. Name and describe two financial intermediaries. 2. Why is it important for people who own stocks and. bonds to diversify their holdings? What type of financial institution makes diversification […]

CONCLUSION

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CONCLUSION “Neither a borrower nor a lender be,” Polonius advises his son in Shakespeare’s Hamlet. If very one followed this advice, this chapter would have been unnecessary Few economists would agree with Polonius. In our economy, people borrow and lend often, and usually for good reason. You may borrow one day to start your own business or to […]

THE HISTORY OF U.S. GOVERNMENT DEBT

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THE HISTORY OF U.S. GOVERNMENT DEBT How indebted is the U.S. government? The answer to this question varies substantially over time. Figure 5 shows the debt of the U.S. federal government expressed as a percentage of U.S. GDP. It shows that the government debt has fluctuated from zero in 1836 to 107 percent of GDP in 1945. […]

Poucv 3: GOVERNMENT BUDGET DEFICITS AND SURPLUSES

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Poucv 3: GOVERNMENT BUDGET DEFICITS AND SURPLUSES A perpetual topic of political debate is the’status of the government budget. Recall that a budget deficit is an excess of government spending over tax revenue. Governments finance budget deficits by borrowing in the bond market, and the accumulation of past government borrowing is called the government debt. A budget surplus, […]

POLICY 2: INVESTMENT INCENTIVES

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POLICY 2: INVESTMENT INCENTIVES Suppose that Congress passed a tax reform aimed at making investment more attractive. In essence, this is what Congress does when it institutes an investment tax credit, which it does from time to time. An investment tax credit gives a tax advantage to any firm building a new factory or buying a new […]

POLICY 1: SAVING INCENTIVES

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POLICY 1: SAVING INCENTIVES American families save a smaller fraction of their incomes than their counterparts in many other countries, such as Japan and Germany. Although the reasons for these international differences are unclear, many US. policymakers view the low level of US. saving as a major problem. One of the Ten Principles of Economics in Chapter 1 […]

SUPPLY AND DEMAND FOR LOAN ABLE FUNDS

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SUPPLY AND DEMAND FOR LOAN ABLE FUNDS The economy’s market for loan able funds, like other markets in the economy, is governed by supply and demand. To understand how the market for loan able funds operates, therefore, we first look at the sources of supply and demand in that market The supply of loan able funds comes from […]

THE MARKET FOR LOAN ABLE FUNDS

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THE MARKET FOR LOAN ABLE FUNDS Having discussed some of the important financial institutions in our economy and the macroeconomic role of these institutions, we are ready to build a model of financial markets. Our purpose in building this model is to explain how financial markets coordinate the economy’s saving and investment. The model also gives us a […]