Economics
Borrowing
Borrowing refers to the act of obtaining funds from a lender with the agreement to repay the borrowed amount plus interest over a specified period. It is a common practice in both personal and business finance and can be used to finance various activities such as investments, purchases, and debt consolidation. Borrowing can be done through various channels such as banks, credit unions, and online lenders.
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6 Key excerpts on "Borrowing"
eBook - PDF- Steven A. Greenlaw, Timothy Taylor(Authors)
- 2014(Publication Date)
- Openstax(Publisher)
The budget to support financial aid has increased not only because of increased enrollment, but also because of increased tuition and fees for higher education. These increases are currently Chapter 18 | The Impacts of Government Borrowing 423 being questioned. The President and Congress are charged with balancing fiscal responsibility and important government-financed expenditures like investing in human capital. Introduction to the Impacts of Government Borrowing In this chapter, you will learn about: • How Government Borrowing Affects Investment and the Trade Balance • Fiscal Policy, Investment, and Economic Growth • How Government Borrowing Affects Private Saving • Fiscal Policy and the Trade Balance Governments have many competing demands for financial support. Any spending should be tempered by fiscal responsibility and by looking carefully at the spending’s impact. When a government spends more than it collects in taxes, it runs a budget deficit. It then needs to borrow. When government Borrowing becomes especially large and sustained, it can substantially reduce the financial capital available to private sector firms, as well as lead to trade imbalances and even financial crises. The Government Budgets and Fiscal Policy chapter introduced the concepts of deficits and debt, as well as how a government could use fiscal policy to address recession or inflation. This chapter begins by building on the national savings and investment identity, first introduced in The International Trade and Capital Flows chapter, to show how government Borrowing affects firms’ physical capital investment levels and trade balances. A prolonged period of budget deficits may lead to lower economic growth, in part because the funds borrowed by the government to fund its budget deficits are typically no longer available for private investment.
eBook - PDFPublic Sector Economics
Made Simple
- D. I. Trotman-Dickenson(Author)
- 2014(Publication Date)
- Made Simple(Publisher)
Its funds come from the following sources: (i) member countries' subscrip-tions that are related to their IMF quotas, 10 per cent of a subscription is paid up and the rest represents a guarantee, (ii) issue of bonds in the world's capital markets, (iii) net income from the bank's operations. The World Bank investigates, supervises and finances projects that will lead to economic growth, but over the years the priorities have changed. Loans for which approval was given were largely for schemes with emphasis on: Phase 1, infrastructure, such as transport, power or water supplies; Phase 2, diversification in agriculture and the development of productive potential; Phase 3, socially orientated projects with no immediate return. The bank charges interest on its loans but since countries borrow from it to a large extent for 'productive' purposes, this helps to mitigate the burden of their national debt. Summary 1 National debt is the result of Borrowing by the government. It is internal debt, if the loans have been raised in the domestic money market and external debt, if the money comes from abroad. 2 In the U K the national debt consists of central government Borrowing on its own account and on behalf of the nationalised industries. Direct Borrowing by local authorities is not included. 3 The government issues stocks, bonds and certificates in return for the money lent to it. Those government issues that can be traded, are the marketable debt. 4 To attract funds government stocks have to be offered of a type that investors want and at a price and yield that will appeal to them. 5 An important innovation has been the issue of index-linked bonds. Indexation protects the value of an investment from erosion by inflation. 6 National debt performs a useful function. It provides an outlet for small savings and an asset for investors in general and for various institutions, including banks that need to keep some of their reserves in a safe and relatively liquid form.
eBook - PDF- David Shapiro, Daniel MacDonald, Steven A. Greenlaw(Authors)
- 2022(Publication Date)
- Openstax(Publisher)
This chapter begins by building on the national savings and investment identity, which we first introduced in The International Trade and Capital Flows chapter, to show how government Borrowing affects firms’ physical capital investment levels and trade balances. A prolonged period of budget deficits may lead to lower economic growth, in part because the funds that the government borrows to fund its budget deficits are typically no longer available for private investment. Moreover, a sustained pattern of large budget deficits can lead to disruptive economic patterns of high inflation, substantial inflows of financial capital from abroad, plummeting exchange rates, and heavy strains on a country’s banking and financial system. 18.1 How Government Borrowing Affects Investment and the Trade Balance LEARNING OBJECTIVES By the end of this section, you will be able to: • Explain the national saving and investment identity in terms of demand and supply • Evaluate the role of budget surpluses and trade surpluses in national saving and investment identity When governments are borrowers in financial markets, there are three possible sources for the funds from a macroeconomic point of view: (1) households might save more; (2) private firms might borrow less; and (3) the additional funds for government Borrowing might come from outside the country, from foreign financial investors. Let’s begin with a review of why one of these three options must occur, and then explore how interest rates and exchange rates adjust to these connections. The National Saving and Investment Identity The national saving and investment identity, which we first introduced in The International Trade and Capital Flows chapter, provides a framework for showing the relationships between the sources of demand and supply in financial capital markets.
eBook - PDF- Steven A. Greenlaw, David Shapiro, Daniel MacDonald(Authors)
- 2022(Publication Date)
- Openstax(Publisher)
This chapter begins by building on the national savings and investment identity, which we first introduced in The International Trade and Capital Flows chapter, to show how government Borrowing affects firms’ physical capital investment levels and trade balances. A prolonged period of budget deficits may lead to lower economic growth, in part because the funds that the government borrows to fund its budget deficits are typically no longer available for private investment. Moreover, a sustained pattern of large budget deficits can lead to disruptive economic patterns of high inflation, substantial inflows of financial capital from abroad, plummeting exchange rates, and heavy strains on a country’s banking and financial system. 31.1 How Government Borrowing Affects Investment and the Trade Balance LEARNING OBJECTIVES By the end of this section, you will be able to: • Explain the national saving and investment identity in terms of demand and supply • Evaluate the role of budget surpluses and trade surpluses in national saving and investment identity When governments are borrowers in financial markets, there are three possible sources for the funds from a macroeconomic point of view: (1) households might save more; (2) private firms might borrow less; and (3) the additional funds for government Borrowing might come from outside the country, from foreign financial investors. Let’s begin with a review of why one of these three options must occur, and then explore how interest rates and exchange rates adjust to these connections. The National Saving and Investment Identity The national saving and investment identity, which we first introduced in The International Trade and Capital Flows chapter, provides a framework for showing the relationships between the sources of demand and supply in financial capital markets.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
Sometimes this theory holds true, and sometimes it does not. (Source: Bureau of Economic Analysis and Federal Reserve Economic Data) Private saving does increase to some extent when governments run large budget deficits, and private saving falls when governments reduce deficits or run large budget surpluses. However, the offsetting effects of private saving compared to government Borrowing are much less than one-to-one. In addition, this effect can vary a great deal from country to country, from time to time, and over the short and the long run. If the funding for a larger budget deficit comes from international financial investors, then a trade deficit may accompany a budget deficit. In some countries, this pattern of twin deficits has set the stage for international financial investors first to send their funds to a country and cause an appreciation of its exchange rate and then to pull their funds out and cause a depreciation of the exchange rate and a financial crisis as well. It depends on whether funding comes from international financial investors. Chapter 31 | The Impacts of Government Borrowing 753 31.4 | Fiscal Policy, Investment, and Economic Growth By the end of this section, you will be able to: • Explain crowding out and its effect on physical capital investment • Explain the relationship between budget deficits and interest rates • Identify why economic growth is tied to investments in physical capital, human capital, and technology The underpinnings of economic growth are investments in physical capital, human capital, and technology, all set in an economic environment where firms and individuals can react to the incentives provided by well-functioning markets and flexible prices. Government Borrowing can reduce the financial capital available for private firms to invest in physical capital.
eBook - PDFIndebted Societies
Credit and Welfare in Rich Democracies
- Andreas Wiedemann(Author)
- 2021(Publication Date)
- Cambridge University Press(Publisher)
2 A Social Policy Theory of Everyday Borrowing “Life Takes Visa” was the slogan of America’s largest credit card issuer up until 2009, when the Great Recession had already begun to affect the economic and financial lives of millions of people in the United States and elsewhere. 1 But credit cards are no longer only a means to easily purchase goods and services. Many individuals cannot live without some form of credit such as mortgages, personal and educational loans, and credit cards. Borrowing money has become an essential part of many people’s daily lives, and it increasingly determines life chances and full participation as economic citizens (Krippner 2017). This is reflected in the tremendous growth in household debt over the past decades in Anglo-Saxon economies such as the United States and the United Kingdom, but also in European countries such as the Netherlands and Denmark. American households, for example, carry a total debt load of $14.3 trillion (Federal Reserve Bank of New York 2020), while in the United Kingdom household debt reached a record of £1.28 trillion in 2018 (ONS 2019). Across the OECD, the total sum of debt, measured as a share of households’ disposable income, has grown from an average of 78 percent in 1995 to 126 percent in 2019 (OECD 2020b). In other countries, however, most notably Germany and Japan, household debt as a share of income has remained stagnant. This chapter presents an overview of the book’s argument and develops what I call a social policy theory of everyday Borrowing. I begin by laying out how welfare states’ social consumption and social investment policies support individuals as employment patterns and life course trajectories have become fragmented, and the extent to which financial gaps arise between households’ financial needs and welfare states’ financial support.
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