Question

Kristi deposits, or invests, her paycheck in a savings account. The bank can then offer some of the money to a borrower in the

form of a loan. How can Kristi benefit financially from this relationship?

Kristi can earn interest on her original deposit.

B)

Kristi can feel good that she supported a borrower.

Eliminate

Kristi can choose to invest her money in another bank that doesn't make

loans to borrowers.

Kristi can decide to take her money out the savings account before the

loan is made to save money.

Answer 1

A) Kristi can earn interest on her original deposit

Step-by-step explanation:

Banks obtain deposits from people who put their money in savings accounts. Banks reserve some of that money, and loan out the rest. That is the system under which all banks operate, and it is known as fractional-reserve banking, because only a fraction of deposits are kept as reserves, the rest is loaned.

Banks pay interest to depositors, and earn interest from borrowers. Banks are able to make a profit because they charge a higher interest rate to borrowers than the rate they pay to depositors.

In this example, Kristi is earning some interest from the bank because otherwise she would not have any incentive to deposit her money in a savings account, and the bank pays her interest because the bank needs her money to continue its business model.