Evaluate the following statement: "Saving money is not lending. How can it be? When I save my money, I put it in a bank. I don't loan it out to someone else." The statement is A. correct. Depositing money in a bank is borrowing, not saving. B. correct. Depositing money in a bank is neither saving nor borrowing. C. incorrect. The supply of loanable funds is determined by household saving. D. incorrect. The supply of loanable funds is determined by firms' willingness to borrow.

Question

Big Bird

Business

10 April, 11:15

Evaluate the following statement: "Saving money is not lending. How can it be? When I save my money, I put it in a bank. I don't loan it out to someone else." The statement is A. correct. Depositing money in a bank is borrowing, not saving. B. correct. Depositing money in a bank is neither saving nor borrowing. C. incorrect. The supply of loanable funds is determined by household saving. D. incorrect. The supply of loanable funds is determined by firms' willingness to borrow.

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Answers (1)

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Amir Lowe · Answer 1

The correct answer is option C.

Explanation:

When we save we deposit it in the bank and do not loan it out directly. But the bank keeps a certain portion of it and lends out the rest to those who need credit. So, the savings that we deposit in the bank become the basis of credit creation.

That is why the statement about saving and lending given in the question is incorrect.