Financial Markets, Banking, and Monetary Policy

CHAPTER 1 Introduction

WHAT YOU WILL LEARN IN THIS CHAPTER

• What is meant by the financial system.
• What is meant by monetary policy.
• The ways in which the financial system contributes to economic well-being—by transferring resources from surplus to deficit spending units; by providing a variety of financial instruments to participants; by providing a reliable and efficient payment system; by providing for a better allocation of risk in the economy; and by imposing discipline on business management.
• Some basic features of the financial system that will keep coming up in our study.

OVERVIEW

Financial markets, banks, and monetary policy all touch our lives in numerous ways. Perhaps you have been able to be in school because of a student loan or money that your parents saved while you were growing up. When you last bought a jacket from a clothing store, you paid for it with cash in your wallet or with a check, debit card, or credit card. Chances are that the car you are driving was bought with an auto loan. Before long, you are likely to be in the market to purchase a home and will need a mortgage to make it happen. Prior to that, you could well be looking for an apartment, and the owner of that property took out a mortgage to buy the building.

Once you launch your career, you will be considering a savings program to meet future goals, such as accumulating a nest egg for retirement. Speaking of your career, the prospects for easily finding the job you are seeking will depend importantly ...