Macroeconomics
Chapter 4: Financial Sector Overview This chapter delves into the core building blocks of the fnancial system, exploring various types and functionsof money,stocks,andbonds.Wedissecttheconceptoftime value of money, understanding how its present value differs from its future worth. Thechapterdistinguishesbetweencommercialandcentral banks, analyzing their roles and structures. It further examinesthefractionalreservesbankingsystem,revealing how banks create credit, impacting the money supply.
Financial markets like the money market and loanable funds market are introduced, highlighting their functions in facilitating the flow of funds between borrowers and lenders. Finally,thechapterexaminesmonetarypolicy,thetoolsusedbycentralbankstoinfluenceinterestrates and the money supply, aiming to achieve macroeconomic objectives like price stabilityandeconomic growth. Learning Objectives ● Differentiate between barter, stocks, bonds, and the different types and functions of money. ● Understand and calculate the time value of money. ● Distinguish commercial from central banks and understand how the fractional-reserves banking system works. ● Understand and analyze changes in the money market and the loanable funds market. ● Identify the meaning, tools, and limitations of monetary policy and understand the quantity theory of money. A. Definition of Financial Assets: Money, Stocks, and Bonds Howdidpeopleexchangegoodsandservicesbeforemoneyexisted?Whywereshellbeadsacceptedas ameansofpaymentsincertaincultures?Inthissection,wewillexaminewhatqualifesanassettobe considered as “money” and defne other types of fnancial assets. Barter vs. Money Before the money asweknowittodayexisted,people“bartered”goodsandservices. Barter refersto thedirectexchangeofgoodsandserviceswithoutusingmoneyasanintermediary . Forexample,a By the end of this chapter, you should be able to:
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