1. Identify and describe the three tasks of a well-functioning financial system.

Answer (6 points)

1 point: Decrease transaction costs 1 point: A well -functioning financial system facilitates investment spending by allowing companies to borrow large sums of money without incurring large transaction costs.

1 point: Decrease risk 1 point: A well -functioning financial system helps people reduce their exposure to risk, so that they are more willing to engage in investment spending in the face of uncertainty in the economy.

1 point: Provide liquidity 1 point: A well-functioning financial system allows the fast, low-cost conversion of assets into cash.