Principles of Macroeconomics
6th Edition
ISBN: 9780073518992
Author: Robert H. Frank, Ben Bernanke Professor, Kate Antonovics, Ori Heffetz
Publisher: McGraw-Hill Education
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Question
Chapter 9, Problem 1RQ
To determine
Determine the two ways that banking system helps to improve the allocation of saving.
Expert Solution & Answer
Explanation of Solution
The existing banking system in our economy always helps for the better allocation of savings. The two main possible ways that banking system follows to improve the allocation of savings are listed below:
- Provide information: The banking system provides the information about the different investment opportunities in an economy. It helps the savers to allocate their savings in the most productive investment opportunities. For instance, stock and bond analysts investigate the potential returns of companies seeking funds, in such situations, the information provided by the banking system directing the resources to the most attractive opportunities
- Share the risks: The banking system helps the savers to share the risk of individual investment projects by diversify across a wide variety of stocks.
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