tailieunhanh - The economics of Money, Banking and Financial Markets Part 4

Ch a p ter 8 An Economic Analysis of Financial Structure. A healthy and vibrant economy requires a financial system that moves funds from people who save to people who have productive investment opportunities. | Part III Financial Institutions Chapter 8 An Economic Analysis of Financial Structure PREVIEW A healthy and vibrant economy requires a financial system that moves funds from people who save to people who have productive investment opportunities. But how does the financial system make sure that your hard-earned savings get channeled to Paula the Productive Investor rather than to Benny the Bum This chapter answers that question by providing an economic analysis of how our financial structure is designed to promote economic efficiency. The analysis focuses on a few simple but powerful economic concepts that enable us to explain features of our financial system such as why financial contracts are written as they are and why financial intermediaries are more important than securities markets for getting funds to borrowers. The analysis also demonstrates the important link between the financial system and the performance of the aggregate economy which is the subject of Part V of the book. The economic analysis of financial structure explains how the performance of the financial sector affects economic growth and why financial crises occur and have such severe consequences for aggregate economic activity. Basic Puzzles About Financial Structure Throughout the World The financial system is complex in structure and function throughout the world. It includes many different types of institutions banks insurance companies mutual funds stock and bond markets and so on all of which are regulated by government. The financial system channels billions of dollars per year from savers to people with productive investment opportunities. If we take a close look at financial structure all over the world we find eight basic puzzles that we need to solve in order to understand how the financial system works. The pie chart in Figure 1 indicates how American businesses financed their activities using external funds those obtained from outside the business itself in the period 1970-1996. .

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