PRIN MACROECON LL+CNCT+SMARTBOOK
6th Edition
ISBN: 9781260580792
Author: Frank
Publisher: MCG CUSTOM
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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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Students have asked these similar questions
Suppose consumers lose their faith in the banking system, and decide to start stuffing their money under their mattress rather than saving it in a bank or buying bonds. This will cause interest rates to _____ and the amount borrowed to _____
increase or decrease?
You are been asked by your younger sister to explain what banking is, write brief description of the activities of a bank explaining how they generate income.
The suppliers of loanable funds are
Select one:
a.
people who save money at banks.
b.
banks who give loans to borrowers.
c.
central banks (like the Federal Reserve System) that produce currency and coins.
d.
borrowers who supply loan applications to banks.
Knowledge Booster
Similar questions
- Why is a capital market needed when there is a banking system in the financial market? Explain?arrow_forwardLet's say that you have put $1,000 in your savings account at a local financial institution, and an employee of the bank tells you that the bank does not have the money you deposited in its vault (or anywhere else) in the bank. Could the employee be correct and, if so, then where is the money that you deposited into your savings account? Should you be worried about getting your deposit back from the bank? Why or why not? Explain how your deposit benefits the banking and financial system in the U.S.arrow_forwardWhat are the main functions of banks? Explain the role played by commercial banks in the economic development of a country.arrow_forward
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