ECON3109 Lecture Notes - Lecture 8: Barter, Financial System, Capital Accumulation
Document Summary
Industrialisation decreases the gap between inputs and outputs. Finance and institutions: the existence of investment financing mechanisms (institutions and market) for dealing with the problem of maturity mismatching in the context of uncertainty is a precondition for (financially) sustained economic growth. By pooling savings of patient and impatient agents, financial institutions can transform short-term liabilities into long term assets, enabling long-term investment and ultimately economic growth. "by pooling savings across a large number of savers with differently timed liquidity needs, financial institutions can help overcome liquidity needs, financial institutions can help overcome liquidity risks and ultimately provide savers with a higher return. Similarly, more liquid finical markets increase incentives for investors to relinquish control over their savings, as they are able to access them through financial markets on an immediate basis, while at the same time earning higher returns" Stages in the development of the financial sector: initially money mainly currency, with little if any credit creation.
