A wellfunctioning financial system supports economic growth from "summary" of Principles of Macroeconomics by N. Gregory Mankiw
A financial system plays a crucial role in promoting economic growth by facilitating the flow of funds from savers to borrowers. When individuals save money, they deposit it into financial institutions such as banks, which in turn lend these funds to businesses and households looking to invest or spend. This intermediation process is essential for allocating resources efficiently and spurring economic activity. A well-functioning financial system ensures that funds are channeled to their most productive uses, which can lead to higher investment, increased productivity, and ultimately, economic growth. By providing a mechanism for individuals and businesses to access credit, financial institutions enable them to undertake projects that would otherwise not be possible. This access to credit can fuel innovation, entrepreneurship, and capital formation, all ...
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