ECON-3076EL Lecture Notes - Lecture 10: Landing Vehicle Tracked, Pearson Education, Loanable Funds
28 Feb 2017
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Document Summary
It is the study of the characteristics, performance, and the interconnections of the financial system of a country to its real economy. Financial system = financial + financial markets institutions. Characteristics of fin. markets and institutions engaged in the transfer. Financial instruments (bonds, stocks) created to facilitate the transfer. Base money t-bills govt corp. stocks real machinery. Net invest(cid:373)e(cid:374)t = k = i d = 15. Role of the financial system in financing capital expansion k. Surplus units: income > spending: savings > 0. Deficit units: spending > current: savings < 0. Co-ordination problem: surplus units have excess funds but do not have the know-how to invest in real assets (k). Deficit units (firms, govt) have the know-how to invest in profitable real assets but are short of funds. A primary function of the financial system is to transfer funds from savers to the most productive investment projects in the economy.
