An article in the Wall Street Journal on the use of artificial
intelligence (AI) in the financial system stated that “similar to index-tracking funds, funds managed in part by
artificial intelligence require less human intervention and
therefore can often cost less to run.” The article also noted
that banks are using AI to decrease the costs and increase
the accuracy of compliance with government regulations.
a. What financial intermediary do “index-tracking
funds” or “funds” refer to?
b. How does the use of AI affect labor productivity in the
financial system? Briefly explain.
c. How would the financial system’s use of AI affect the
rate of long-run economic growth? Briefly explain
using the loanable funds model.
Source: Kim S. Nash, “Artificial Intelligence Geared to Erase Capital
Markets Jobs,” Wall Street Journal, May 3, 2017.