1.  Introduction: the financial system

1.1       Financial Institutions

            1.1.1    Financial institutions as firms

            1.1.2    Financial institutions as ‘intermediaries’

            1.1.3    The creation of assets and liabilities

            1.1.4    Portfolio equilibrium

1.2       Financial markets

            1.2.1    Types of product

            1.2.2    The supply of financial instruments

            1.2.3    The demand for financial instruments

            1.2.4    Stocks and flows in financial markets

1.3       Lenders and borrowers

            1.3.1    Saving and lending

            1.3.2    Borrowing

            1.3.3    Lending, borrowing and wealth

1.4       Summary

Questions for discussion

Further reading

2.  The financial system and the real economy

2.1       Lending, borrowing and national income

2.2       Financial activity and the level of aggregate demand

            2.2.1    Money and spending

            2.2.2    Liquid assets and spending

            2.2.3    Financial wealth and spending

2.3       The composition of aggregate demand

2.4       The financial system and resource allocation

2.5       Summary

Questions for discussion

Further reading

Answers to exercises

3.  Deposit-taking institutions

3.1       The Bank of England

            3.1.1    The conduct of monetary policy

            3.1.2    Banker to the commercial banking system

            3.1.3    Banker to the government

            3.1.4    Supervisor of the banking system

            3.1.5    Management of the national debt

            3.1.6    Manager of the foreign exchange reserves

            3.1.7    Currency Issue

3.2       Banks

3.3       Banks and the creation of money

            3.3.1    Why banks create money

      &nbs