Question

Explain how economic transactions between household savers of funds and corporate users of funds would occur in a world without financial institutions.

a) Through direct barter
b) Through government intervention
c) Through informal agreements
d) Through religious institutions

Answer 1

In a world without financial institutions, economic transactions would likely occur through direct barter, informal agreements, and government intervention. Direct barter involves individuals trading goods or services directly, while informal agreements rely on trust and reputation. Government intervention may occur through programs or initiatives that promote investment or lending.

Step-by-step explanation:

In a world without financial institutions, economic transactions between household savers and corporate users of funds would likely occur through direct barter, informal agreements, and to a lesser extent, government intervention.

1. Direct barter: In this system, individuals would trade goods and services directly without the need for money or financial institutions. For example, a household saver who wants to invest in a corporate user of funds could offer their agricultural produce in exchange for shares in the company.
2. Informal agreements: Individuals could establish informal agreements or contracts to facilitate the transfer of funds. These agreements might involve mutual trust and reputation within a community. For instance, a household saver could lend money to a corporate user of funds based on a verbal or written agreement specifying the terms of repayment.
3. Government intervention: In certain cases, the government may step in and facilitate economic transactions between household savers and corporate users of funds. This could be through programs or initiatives aimed at promoting investment or lending between the two parties.