Which is the most important function of banks in an economy?
(1 point)
Responses
extending credit
extending credit
guarding savings
guarding savings
providing mutual fund options
providing mutual fund options
managing employee pay systems
managing employee pay systems
Extending credit
Customers cannot purchase every product. How does this fact affect companies that make products?
(1 point)
Responses
They increase costs to make up for low sales.
They increase costs to make up for low sales.
They decrease quality to make up for low sales.
They decrease quality to make up for low sales.
They provide better value so that customers choose their products.
They provide better value so that customers choose their products.
They provide fewer options so that customers choose their products.
They provide fewer options so that customers choose their products.
The most important function of banks in an economy is extending credit.
The most important function of banks in an economy is extending credit. Banks play a crucial role in providing loans and credit to individuals, businesses, and governments. This allows for economic growth, as credit helps fund investment, consumption, and other economic activities.
To arrive at this answer, you can eliminate the other options one by one:
- "Guarding savings" is an important function of banks but not the most important in the context of the question. While banks provide a safe place for individuals to store their money and earn interest, it is the extension of credit that drives economic growth.
- "Providing mutual fund options" is also an important service offered by banks, but it is more related to investment rather than the overall functioning of the economy. Mutual funds allow individuals to invest in a diversified portfolio of securities, but they are not as fundamental to economic activity as extending credit.
- "Managing employee pay systems" is a function mainly associated with payroll services provided by banks to businesses. While this service is essential for businesses to efficiently manage their employees' salaries, it is not as central to the overall functioning of the economy as extending credit.
By eliminating these options, you can conclude that extending credit is the most important function of banks in an economy.