Abstract: Some of the frameworks and concepts of macroeconomics are deployed to explore the place of financial markets in the US economy, and various important questions are introduced (such as how interest rates are determined) that are elaborated upon in later chapters. The first section of the chapter looks at real assets and financial claims – balance sheets for the US economy, the US international investment position, and distribution of financial assets. In the second section – A framework for macroeconomic analysis of flows – one of the main tools of analysis used is the National Income and Product Accounts (NIPA), which extend the accounting concepts developed in Ch. 1 to the economy as a whole; these accounts are combined with the Flow of Funds (FOF) accounts into a framework for describing supply and demand in the securities markets. The third section discusses the rate of interest. The framework presented in the second section is then used to discuss the effects of monetary and fiscal policy and of inflation, particularly on interest rates and securities prices.

Keywords: accounting, assets, balance sheets, demand, financial claims, financial markets, fiscal policy, Flow of Funds accounts flows, FOF, inflation, interest rates, international investment, investment, macroeconomic analysis, macroeconomics, monetary policy, National Income and Product Accounts, NIPA, real assets, securities, supply, USA,