Your niece just started her college career with a major in economics. She is curious as to the interrelationship between the success of an economy and the financial markets, concepts, and financial institutions. Accordingly, she has developed a list of questions addressing these issues and has asked that you explain the ideas.

1-What are the financial markets and what purposes do they serve?

2-What are financial intermediaries? How do these intermediaries function in the economy?

3-What is a federal government budget deficit? What is the national debt? How does a budget deficit affect the economy?

She is also curious about the time value of money concepts. Specifically, she has the following questions about these concepts:

4-Why are consumers considered to be risk averse? What methods could used to deal with risk?

5-It has been said that a dollar received today is worth more than a dollar received tomorrow. What does this mean and what is the significance to the economy?

6-What is the difference between the present value of a future sum of money and the future value of a present sum of money? What is the significance of these concepts to economics?

7-If you deposited $1,000 in an account paying 6% interest compounded annually, how long would it take to double?