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By running a deficit the government spends more than

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Unformatted text preview: been uniform. Some people have benefited (a lot) more than others. 8. Only a few countries concentrate most of the wealth in the world. The richest 20% of the countries in the world have more than 80% of the world’s income. But this is true at the country level as well. Both poor and rich countries exhibit big inequalities. The richest 10% in the US, for example, holds around 85% of the country’s income. But inequalities in poorer economies are big as well. See the example from Peru in the slides, for instance. Chapter 13 1. Recall that the financial system plays an important role in channeling funds from borrowers to savers. The financial system is crucial to be able to fund investment projects. 2. Firms can look for funds directly through financial markets (by issuing bonds or stock) or indirectly through financial intermediaries (by getting loans from a bank). Even though, potentially, anyone could raise money directly through financial markets, banks are still important because they allow agents to minimize risk and costs by operating at a large scale. 3. Recall if firms make profits, they can use the profits to pay the owners (dividends) or to reinvest in the company. Dividend yields are the percentage of the price of a share that a company pays in dividends. The price earnings ratio compares the cost of a share (the price) and how benefit of a share (earnings per share). Read about the PE in the FYI box on page 263. 4. National savings is the part of income of a country that is not spent. Private agents (households and firms) contribute to savings (through private savings, Y- T- C) but the government also contributes to savings (public savings, T- G). 5. In the loanable funds market, the supply is determined by how much the economy saves (either privately or publicly). So, factors that can shift the supply curve include: anything that make people save more (or less) and the government’s budget (this will increase or decrease public savings). Again, the supply falls by shifting the curve to the right. Only changes in the price of loans, the interest rate, will cause movements along the...
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