Question

Imagine an economy without banks. Would it be more or less difficult for people to reach their financial goals?

More difficult, because it would be much harder for people to save money or obtain loans without banks.

More difficult, because it would be easier for people to obtain loans without banks getting in the way.

Less difficult, because without banks people would be less likely to save money.

Less difficult, because people would not have to worry about banks charging unnecessary fees.

Answer 1

The first option seems right

Answer 2

The correct answer is: " More difficult, because it would be much harder for people to save money or obtain loans without banks".

The basic economic activity undertaken by banks consists on attracting savings from economic agents, by encouraging them to deposit their money in the bank by offering a retribution (interest rate) in exchange. Afterwards, banks use the money collected from savers to issue loans to other economic agents that demand funds.

Therefore, the role of banks is essential because they put money suppliers and demandants in contact and, they foster that economic agents become more incentived to accumulate savings. This shows how financial operations would be much more difficult without banks.