Question

In: Economics

Please be brief and no more than 3 sentences are expected. Why a good financial system...

Please be brief and no more than 3 sentences are expected.

  1. Why a good financial system is important for an economy?
  2. Do all the financial institutions’ functions are similar to each other?
  3. Explain “loanable funds market”?
  4. Is “saving” necessary for “investment”?
  5. How the government can influence the loanable funds market outcomes?

Solutions

Expert Solution

Ans: the financial system is a key factor for the development of a country. it represents the financial status and the investment growth of a country. it can also present the money circulation in terms of investment and saving.

Yes almost all the financial institutions are having similar types of functions. The major functions are like saving, wealth, payment, risk, liquidity, credit, policy. It promote direct investment, it help customer to understand the various investment plans and risk associated with it. so it plays a vital role in economic development of an economy.

Loan able fund is the sum total of all sorts of saving formal or informal ready to lend for investment is known as loan able fund. This is one of the vital factors for economic growth. it also represent the status of an economy in terms of saving and investment.

Saving is necessary for investment. When we know the financial resources are limited and the income divided between consumption and saving then saving is the only factor which leads to the saving. If all the income will be invested for consumption then there will be lack of saving and that will reduce the potentiality of investment.

Government has a vital role in the generation of loan able fund. When there is a reduction in tax that leads to an increase in money supply and that money can be utilized for loan fund generation. Again when the government will sell its bond that gives money in the hands of saver so it will leads to further investment.


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