Financial markets allocate the economy's saving to investment from "summary" of Principles of Macroeconomics by N. Gregory Mankiw
Financial markets play a crucial role in the economy by connecting those who want to save with those who want to invest. When individuals or households save money, they have several options for where to put that money. They could keep it in cash under their mattress, deposit it in a bank, or invest it in financial assets like stocks or bonds. Financial markets help allocate these savings to the most productive investments in the economy. For example, when a company wants to build a new factory or develop a new product, it needs funds to finance these projects. By issuing stocks or bonds, the company can raise money from investors who are looking to earn a return on their savings.
In this way, financial markets act as intermediaries bet...
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