Match each of the terms on the left with its definition on the right. Click on the term first and then click on the matching definition. As you match them correctly they will move to the bottom of the activity.

KEY TERMS

Question

Savings–investment spending identity
Budget surplus
Budget deficit
Budget balance
National savings
Net capital inflow
Loanable funds market
Present value
Equilibrium interest rate
Crowding out
Fisher effect
Wealth
Financial asset
Physical asset
Liability
Transaction costs
Financial risk
Diversification
Liquid
Illiquid
Loan
Default
Loan-backed securities
Financial intermediary
Mutual fund
Pension fund
Life insurance company
Bank deposit
Bank
Efficient markets hypothesis
Random walk
a financial intermediary that sells policies guaranteeing a payment to a policyholder’s beneficiaries when the policyholder dies.
the principle by which an increase in expected future inflation drives up the nominal interest rate, leaving the expected real interest rate unchanged.
the total inflow of funds into a country minus the total outflow of funds out of a country.
the movement over time of an unpredictable variable.
a principle of asset price determination that holds that asset prices embody all publicly available information. The hypothesis implies that stock prices should be unpredictable, or follow a random walk, since changes should occur only in response to new information about fundamentals.
a claim on a bank that obliges the bank to give the depositor his or her cash when demanded.
the failure of a bond issuer to make payments as specified by the bond contract.
assets created by pooling individual loans and selling shares in that pool.
the difference between tax revenue and government spending when tax revenue exceeds government spending; saving by the government in the form of a budget surplus is a positive contribution to national savings.
a type of mutual fund that holds assets in order to provide retirement income to its members.
the difference between tax revenue and government spending. A positive budget balance is referred to as a budget surplus; a negative budget balance is referred to as a budget deficit.
describes an asset that can be quickly converted into cash with relatively little loss of value.
a financial intermediary that provides liquid assets in the form of bank deposits to lenders and uses those funds to finance the illiquid investments or investment spending needs of borrowers.
a hypothetical market that brings together those who want to lend money (savers) and those who want to borrow (firms with investment spending projects).
uncertainty about future outcomes that involve financial losses or gains.
(of X) the amount of money needed today in order to receive X at a future date given the interest rate.
the expenses of negotiating and executing a deal.
(of a household) the value of accumulated savings.
investment in several different assets with unrelated, or independent, risks, so that the possible losses are independent events.
a paper claim that entitles the buyer to future income from the seller. Loans, stocks, bonds, and bank deposits are types of financial assets.
the difference between tax revenue and government spending when government spending exceeds tax revenue; dissaving by the government in the form of a budget deficit is a negative contribution to national savings.
a claim on a tangible object that can be used to generate future income.
a situation where the interest rate at which the quantity of loanable funds supplied equals the quantity of loanable funds demanded.
an institution, such as a mutual fund, pension fund, life insurance company, or bank, that transforms the funds it gathers from many individuals into financial assets.
a financial intermediary that creates a stock portfolio by buying and holding shares in companies and then selling shares of this portfolio to individual investors.
a requirement to pay income in the future.
the sum of private savings and the government’s budget balance; the total amount of savings generated within the economy.
describes an asset that cannot be quickly converted into cash with relatively little loss of value.
a lending agreement between an individual lender and an individual borrower. Loans are usually tailored to the individual borrower’s needs and ability to pay but carry relatively high transaction costs.
an accounting fact that states that savings and investment spending are always equal for the economy as a whole.
the negative effect of budget deficits on private investment, which occurs because government borrowing drives up interest rates.