How do personal savings contribute to the economy?
A. They increase the amount of money banks can invest in stocks and bonds.
B. They increase the amount of money banks can loan to individuals and businesses.
C. They allow consumers to invest in different areas of the economy.
D. They allow consumers to get advice from banks on how to keep track of their money.
B. They increase the amount of money banks can loan to individuals and businesses.
B. They increase the amount of money banks can loan to individuals and businesses.
Personal savings contribute to the economy by increasing the amount of money that banks have available to loan to individuals and businesses. As people save money, it accumulates in banks, which gives banks more funds to lend out. This helps stimulate economic activity by providing individuals and businesses with the capital they need to invest, spend, and grow.
The correct answer is B. Personal savings contribute to the economy by increasing the amount of money banks can loan to individuals and businesses.
When individuals save money, they deposit it into banks or financial institutions. These institutions can then use those savings to provide loans to individuals and businesses. By offering loans, banks stimulate economic activity by allowing individuals to make purchases or invest in education or entrepreneurship, while businesses can invest in expansion and innovation.
This cycle of individuals saving and banks lending helps to fuel economic growth. Personal savings create a pool of funds that can be used for various purposes, including investment in infrastructure, research and development, and job creation. This boosts economic productivity and creates employment opportunities.
Therefore, personal savings are vital for the functioning of financial institutions and their ability to provide loans, which contributes to economic growth and stability.