7.0 Introduction
Learning Objectives
At the end of this chapter, learners will be able to:
- Explain Saving, Investment and the Financial System
- Describe the Loanable Funds Market
- Define the Crowding Out Effect
In any given period, some households, businesses and governments earn more income than they spend. What do they do with their savings? Usually, it doesn’t make sense to put savings under your mattress or bury them in your backyard. Neither of those options will help your savings grow.
Other households, businesses and governments spend more than they earn. Households borrow money for new homes and new cars. Businesses borrow money to finance new physical capital investments. Governments borrow money to finance budget deficits and/or make new expenditures. Where can these households, businesses and governments find the money to finance their expenditures?
The answer to each of these questions is financial markets. In financial markets, savers put their savings to work, and borrowers find funding to borrow. This chapter will provide an overview of financial markets to provide context for the subsequent discussion of money and the banking system.
Attribution
“Introduction to Financial Markets” from Macroeconomics by Lumen Learning is licensed under a Creative Commons Attribution 4.0 International License.
