FINANCIAL INSTITUTIONS IN THE U,S, ECONOMY

At the broadest level, the financial system moves the economy’s scarce resources from savers (people who spend less than they earn) to or rowers (people who spend more than they earn). Savers save for various reasons-to put a child through college in several years or to retire comfortably in several decades. Similarly, borrowers borrow for various reasons-to buy a house in which to live or to start a business with which to make a living. Savers supply their money to the financial system with the expectation that they will get it back with interest at a later date. Borrowers demand money from the financial system with the knowledge that they will be required to pay it back with interest at a later date  The financial system is made up of various financial institutions that help coordinate savers and borrowers. As a prelude to analyzing the economic forces that drive the financial system, let’s discuss the most important of these institutions. Financial institutions can be grouped into two categories financial markets and financial intermediaries. We consider each category in turn.

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