Chapter 15: The Financial Sector
Explainer, notes, worksheet and data.
What you'll learn in this chapter
- analyse demand and supply of cash/credit in the money market
- explain how commercial banks create credit (fractional reserve banking) and the consequences
- explain what influences interest rates and how rate changes affect economic activity
- evaluate the role of financial institutions and regulators
Core ideas
This chapter explains how the financial system supports spending and investment — and why instability can spill into the real economy. You’ll connect bank lending, money creation and interest rates to borrowing, saving, house prices, investment, growth and unemployment.
Exam focus
- step-by-step explanation: how deposits can multiply into new credit in a banking system
- rate-change impacts: list and explain effects of rising vs falling interest rates
- evaluation: why regulation exists (consumer protection, stability) and possible downsides