LN1-Introduction

LN1-Introduction - INTRODUCTION Basic Concepts &...

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INTRODUCTION
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Assets • Assets generate streams of income in across different states and different dates. •Ex amp
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Financial Assets • Promises by one economic agent to deliver a stream of income to another agent. • The first agent usually sells such a promise for income upfront. • This is sometimes called a loan and the first agent is called a borrower. • The second agent is called an investor or lender. Basic Concepts & Examples
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Who buys and sells promises? • Households •F i rm s
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Why do households trade? • Households buy promises for profit (for high “returns”). • Households also buy and sell to smooth out their income from labour market activities. • Households like smooth consumption streams. • They sell promises when their incomes are low and buy when they are high. Basic Concepts Basic Concepts & Examples
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• Borrow when young, as income is expected to rise. • Borrow to go to college.
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LN1-Introduction - INTRODUCTION Basic Concepts &...

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