EBK PRINCIPLES OF MACROECONOMICS
EBK PRINCIPLES OF MACROECONOMICS
7th Edition
ISBN: 9781337342155
Author: Mankiw
Publisher: CENGAGE LEARNING - CONSIGNMENT
bartleby

Concept explainers

Question
Book Icon
Chapter 13, Problem 1QR
To determine

The role of a financial system and the different financial markets and intermediaries.

Expert Solution & Answer
Check Mark

Explanation of Solution

The system that allows the exchange of funds between the different sectors of the economy such as the lenders and the borrowers, lenders and the investors in the most possible form of the money, credit or the finance are known as the financial system. The financial system will operate under various levels in the economy such as the national levels and global levels etc. The main role of the financial system is to provide a matching between the savings of the one who have excess money to the demand of the one who makes an investment. Thus, the savings of someone will be matched with another person's investment under the financial system. There are two markets that are part of the financial system and they are Stock markets and the Bond markets.

The stock markets are the markets that exchange the stocks in order to raise the capital for the investment purpose. The stock is the share of the firm and the stock provides the share of the ownership right to the one who holds it. The large corporate uses this sale of shares in order to raise the investment capital. The stocks provide the stockholders the share of the firm's profit and thus, they are known as the shareholders of the firm. The Bonds on the other hand is the certificate of indebtedness which guarantees the repayment of the loan amount after the maturity of the Bond and the payment of interest on the loan amount. The large corporations, federal government or other state or local governments uses to borrow with the help of the Bonds. The bonds provide interest to the bond holders.

The two different financial intermediaries are the banks and the Mutual funds. The bank accepts the deposits from the public and uses the deposits to create credit in the economy and to provide the loans to the borrowers. The Mutual funds sells the shares to the general public and uses the proceeds to buy a portfolio of financial assets.

Economics Concept Introduction

Concept introduction:

Financial system: The financial system is a system that allows the exchange of the funds between the lenders, investors and the borrowers through the medium of money, credit and finance etc.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
1. Imagine a society that produces military goods and consumer goods, which we'll call "guns" and "butter." a. Draw a production possibilities frontier for guns and butter. Using the concept of opportunity cost, explain why it most likely has a bowed-out shape. b. Show a point that is impossible for the economy to achieve. Show a point that is feasible but inefficient. c. Imagine that the society has two political parties, called the Hawks (who want a strong military) and the Doves (who want a smaller military). Show a point on your production possibilities frontier that the Hawks might choose and a point the Doves might choose. d. Imagine that an aggressive neighboring country reduces the size of its military. As a result, both the Hawks and the Doves reduce their desired production of guns by the same amount. Which party would get the bigger "peace dividend," measured by the increase in butter production? Explain.
A health study tracked a group of persons for five years. At the beginning of the study, 20%were classified as heavy smokers, 30% as light smokers, and 50% as nonsmokers. Resultsof the study showed that light smokers were twice as likely as nonsmokers to die duringthe five-year study, but only half as likely as heavy smokers.A randomly selected participant from the study died during the five-year period. Calculatethe probability that the participant was a heavy smoker
Consider two assets with the following returns: State Prob. of state R₁ R2 1 23 13 25% 5% 2 -10% 1% Compute the optimal portfolio for an investor having a Bernoulli utility of net returns u(r) = 2√√r+ 10. Compute the certainty equivalent of the optimal portfolio. Do the results change if short-selling is not allowed? If so, how?
Knowledge Booster
Background pattern image
Economics
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
  • Text book image
    Economics (MindTap Course List)
    Economics
    ISBN:9781337617383
    Author:Roger A. Arnold
    Publisher:Cengage Learning
    Text book image
    Macroeconomics
    Economics
    ISBN:9781337617390
    Author:Roger A. Arnold
    Publisher:Cengage Learning
    Text book image
    Economics:
    Economics
    ISBN:9781285859460
    Author:BOYES, William
    Publisher:Cengage Learning
  • Text book image
    Survey Of Economics
    Economics
    ISBN:9781337111522
    Author:Tucker, Irvin B.
    Publisher:Cengage,
    Text book image
    MACROECONOMICS
    Economics
    ISBN:9781337794985
    Author:Baumol
    Publisher:CENGAGE L
    Text book image
    Exploring Economics
    Economics
    ISBN:9781544336329
    Author:Robert L. Sexton
    Publisher:SAGE Publications, Inc
Text book image
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
Macroeconomics
Economics
ISBN:9781337617390
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
Economics:
Economics
ISBN:9781285859460
Author:BOYES, William
Publisher:Cengage Learning
Text book image
Survey Of Economics
Economics
ISBN:9781337111522
Author:Tucker, Irvin B.
Publisher:Cengage,
Text book image
MACROECONOMICS
Economics
ISBN:9781337794985
Author:Baumol
Publisher:CENGAGE L
Text book image
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc