Question

What role does the financial system play in economic growth? 

What is the empirical measure of the long run aggregate supply curve?

Answer 1

What role does the financial system play in economic growth?

Financial system plays a crucial role in economic development through saving-investment process. This savings - investment process is call capital formation by serving as a link sandwiched between the savers and investor.

It helps in mobilize and allocating the savings efficiently and effectively

2. It helps to monitor corporate presentation, provides fund for expansion, modernization and technological up gradation.

3. It provides a mechanism for organization uncertainty and controlling risk by providing funds to overcome variations in the market.

4. It provides a mechanism for the transfer of property across geographical boundaries facilitating growth

5. It offers portfolio adjustment services (provided by financial markets and financial intermediaries).

6. It helps in lowering the business costs and increase returns motivating people to save and invest more thereby promoting the process of capital formation.

7. It helps in promoting the process of fiscal deepening and broadening i.e augmented use of financial instrument.