ECO 1302 Lecture Notes - Lecture 3: Deflation, Microcredit, Financial Literacy
5 Oct 2015
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Document Summary
Chapter 15 finance and fiscal policy for development: financial system s role in the economy of a development country. Major function of the financial system: providing payment services. Imagine a world without bank accounts & credit cards: matching savers and investors. Imagine savers searching for investment projects: generating/distributing information. Imagine buying firm stocks without knowing the firm: allocating credit efficiently. Imagine credit goes to anyone who wants instead of the most profitable activities: less gains from specialization & division of labor: pricing, pooling, and trading risks. Imagine investing your retirement savings in one firm"s stock. Imagine waiting 50 years to see a return on your investment. Differences between developed and developing countries financial systems. Fixed exchange rates, currency substitution & capital controls. In developing countries: financial systems are underdeveloped, many players in the economy can not benefit from the financial sector"s services, limited scope for monetary policy. Central bank s role in a developing country"s financial system.
