Which best describes how the money that individuals have in savings accounts affects the economy?
1. The money in savings accounts is used for daily expenses like food and gas which keep the economy going.
2. The money in savings accounts just sits in the bank and does not have a great impact on the economy.
3. Savings accounts stop inflation by keeping some money out of circulation.
4. Banks can put the money in savings accounts into circulation by loaning it to others.
Is the answer 4.
See Ms. Sue's reply below.
Answer 4
Yes, the correct answer is 4. Banks can put the money in savings accounts into circulation by loaning it to others.
When individuals deposit money into savings accounts, banks can use that money to provide loans to individuals, businesses, and other entities. These loans are then used to finance various activities such as starting or expanding businesses, buying homes or cars, and funding other investments. This injection of funds into the economy promotes economic growth and activity.
When banks loan out the money from savings accounts, it increases the money supply in the economy. This increase in the money supply can help stimulate economic activity, as it provides individuals and businesses with access to additional funds they can use for spending or investment.
Furthermore, the interest earned on savings accounts is another way in which the money affects the economy. The interest paid to savers is funded by the interest earned from loans made by the banks. This interest income received by the savers can be spent or invested, further contributing to the economy.
Overall, the money in savings accounts can have a significant impact on the economy by being put into circulation through loans made by banks.