Questions: 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. incorrect. The supply of loanable funds is determined by firms' willingness to borrow. B. correct. Depositing money in a bank is borrowing, not saving. C. correct. Depositing money in a bank is neither saving nor borrowing. D. incorrect. The supply of loanable funds is determined by household saving.

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. incorrect. The supply of loanable funds is determined by firms' willingness to borrow.
B. correct. Depositing money in a bank is borrowing, not saving.
C. correct. Depositing money in a bank is neither saving nor borrowing.
D. incorrect. The supply of loanable funds is determined by household saving.

Transcript text: 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. incorrect. The supply of loanable funds is determined by firms' willingness to borrow. B. correct. Depositing money in a bank is borrowing, not saving. C. correct. Depositing money in a bank is neither saving nor borrowing. D. incorrect. The supply of loanable funds is determined by household saving.

Solution

Solution Steps

Step 1: Define Loanable Funds

Loanable funds represent the total amount of money available for borrowing and lending in an economy. The supply of these funds comes primarily from household saving.

Step 2: Analyze the Role of Banks

Banks act as intermediaries between savers and borrowers. When individuals deposit money into a bank, they are essentially lending it to the bank, which in turn lends these funds to businesses and other individuals.

Step 3: Evaluate the Statement

The statement claims that saving money in a bank is not lending. However, as explained above, saving in a bank increases the supply of loanable funds available for lending by others. Therefore, the act of saving indirectly contributes to lending.