By Maureen Burton
Makes an attempt to evaluate no matter if the USA is in fiscal decline. acceptable to common readers in addition to economics scholars and students, this ebook examines the fears of usa citizens approximately their financial destiny.
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Extra resources for Financial System of the Economy: Principles of Money and Banking
If, however, we spend more than we earn, we have a deficit and have to decide how to finance it. When we spend less on consumption and investment goods than our current income, we are net lenders. If the opposite is true, we are net borrowers. Exhibit 1-1 portrays net lenders and net borrowers. So far we have restricted our analysis to individuals and households, but business firms may also spend more or less than their income. Business firms do not spend on consumption, so all business income is saving except income distributed as dividends to the owners of the firms.
The task before us is to learn how each part of the economy operates and how the collective activity of the parts is affected by the Fed’s monetary policy—the Fed’s efforts to promote the overall health and stability of the economy. In terms of Exhibit 1-3, the Fed monitors the performance of the financial system and the economy with an eye toward augmenting or reducing the supply of funds flowing from lenders through financial markets and financial intermediaries to borrowers. Any action the Fed undertakes sets off a chain of reactions as depicted in Exhibit 1-5.
Economy is composed of many sectors (household, business, government, and foreign). Money and the acts of spending and saving and lending and borrowing are analogous to the flow of blood in the circulatory system of the body. We want to study how the flow of money and credit extension (borrowing and lending) affects the well-being of households, business firms, and the overall economy. By focusing on borrowing and lending money and on spending and saving, we will see how the major sectors of the economy interact to produce goods and ser vices and to generate income.