|The Financial Sector and the Economy|
AFTER READING THIS CHAPTER, YOU SHOULD BE ABLE TO:
The efficient use of markets requires a financial sector that facilitates trades. The modern financial sector is highly sophisticated. In the market for loanable funds, long-term interest rates are determined.
This chapter introduces the definition of money, the functions of money and the alternative measurements of money. This chapter also investigates how banks create money. The process of the creation of money relies on the existence of the money multiplier, which is introduced in this chapter. Changes in the money supply explain changes in short-term interest rates.
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