Principles of Economics- Mankiw (5th) 540

Principles of Economics- Mankiw (5th) 540 - 558 PA R T N I...

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558 PART NINE THE REAL ECONOMY IN THE LONG RUN would find it difficult to raise funds in the bond and stock markets. Most buyers of stocks and bonds prefer to buy those issued by larger, more familiar companies. The small grocer, therefore, most likely finances his business expansion with a loan from a local bank. Banks are the financial intermediaries with which people are most familiar. A primary job of banks is to take in deposits from people who want to save and use these deposits to make loans to people who want to borrow. Banks pay depositors interest on their deposits and charge borrowers slightly higher interest on their loans. The difference between these rates of interest covers the banks’ costs and re- turns some profit to the owners of the banks. Besides being financial intermediaries, banks play a second important role in the economy: They facilitate purchases of goods and services by allowing people to write checks against their deposits. In other words, banks help create a special
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

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