The Financial System and the Economy

Chapter Objectives

This chapter will enable you to develop an understanding of the following:

  1. Types of economic units

  2. Role of a financial system in the economy

  3. National income accounts

  4. Flow of funds analysis

  5. Trends in saving and investment

  6. Trends in household financial saving and liabilities

  7. Relationship between a financial system and economic growth.


All economies operate with a stock of real and financial assets. Real assets may be tangible or intangible. Examples of tangible real assets are land and natural resources, buildings, inventories, equipment, durables, and infrastructure. Examples of intangible real assets are human capital, organisational systems, and governments. Every ...

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