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Impact of Financial Markets on Economic Stability and Growth: The Case of Sub-Prime Mortgage Lending - page 16 / 42

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1/23/2015

Jamshid Damooei, PhD

16

Financial Markets and Economic Stability & Growth

Principles that are at Work in a Well-Functioning Macro-Economy

Financial system moves scarce loanable funds from those who save to those who borrow to buy goods and services and to make investments in new equipment and facilities, so that the global economy can grow and the standard of living can increase.

The basic function of the economic system is to allocate scarce resources – land, labor, management skill, and capital – to produce the goods and services needed by society.

The global economy generates a flow of production in return for a flow of payments.

The circular flow of production and income is interdependent and never ending.

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