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6 November, 03:57

What role does savings play in the process of economic growth

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  1. 6 November, 03:59
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    The role played by banks in the economic growth is that savings promote the generation of loans, and generate funds to new businesses.

    Explanation:

    Banks use the funds on the savings accounts to generate credits to other clients that might be persons or companies.

    Suppose that you have $1000 dollars saved in your bank account. Then, your bank only needs to keep a deposit of the 10% from the $1000. This means to save $100 and use the rest $900 to generate credits to other customers.

    The $900 remaining will be loan to individuals or companies to finance new projects such as: Buying a car, house, invest in machinery or re design a branch from a cloth store.

    These projects boost economic growth as they move the economy with consumption, and investment.
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