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2. TYPES OF MARKETS receiving dividends and capital gains). Households make these savings choices when their anticipated future returns are judged to be more valuable today than the present consumption that households must sacrifice when they save.
<span>Indeed, a major purpose of financial institutions and markets is to enable the transfer of these savings into capital investments. Firms use capital markets (markets for long-term financial capital—that is, markets for long-term claims on firms’ assets and cash flows) to sell debt (in bond markets) or equity (in equity markets) in order to raise funds to invest in productive assets, such as plant and equipment. They make these investment choices when they judge that their investments will increase the value of the firm by more than the cost of acquiring those funds from households. Firms also use such financial intermediaries as banks and insurance companies to raise capital, typically debt funding that ultimately comes from the savings of households, which are usually net accumulators of financial capital.
Microeconomics, although primarily focused on goods and factor markets, can contribute to the understanding of all types of markets (e.g., markets for financial securities)
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