Chapter 26 level of difficulty 2/3

Bond markets, stock markets and banks are all financial institutions that are able to show how the financial system works when dealing with such markets. They are leading into the money that can then be used to be borrowed by others. The main purpose of these financial systems is to allow those who need money in the instant to be able to get some from those who are willing to contribute into helping them. For a closed economy it is necessary to have the national savings be equivalent to that of investments. Money still remains the same in the nation, but those who may have their hands on it are those that will with time change, for different people will have the money at different periods of time. Supply and demand are determinants of the loans being made, and the interest rates that come along with them. Any other policy that will later be added to affect the interest rate must first be observed on the supply and demand curves to see how the policy is to affect the interest rate. National savings, thus then include the savings of both private and public savings, since it is a nation's savings.