Question

A retail bank helps drive economic growth by

a. requiring all loans to be paid back within a few weeks .
b. providing loans and financial services to corporations. c. keeping all deposited funds in reserve at all times.
d. offering affordable mortgage loans to home buyers.

Answer 1

A retail bank contributes to economic growth by offering affordable mortgage loans to home buyers, creating money in the economy through lending, and facilitating a range of essential transactions.

Step-by-step explanation:

A retail bank helps drive economic growth primarily by offering affordable mortgage loans to home buyers. This action fits into the broader context of how banks operate: by holding only a fraction of their deposits as reserves, banks are able to lend money. The process of lending, followed by those funds being redeposited and lent out again, effectively creates money in the economy. In addition to personal loan services, banks facilitate a vast range of transactions in goods, labor, and financial capital markets, providing the needed infrastructure for an economy to function smoothly without solely relying on cash transactions. Banks attract depositors and borrow from other banks or the central government-operated bank, like the Federal Reserve in the United States, to acquire the money that they need to lend out. They also invest in various financial instruments to earn higher rates of return.

Answer 2

A retail bank helps drive economic growth by providing loans and financial services to corporations and offering affordable mortgage loans to home buyers.

Sure, let's break down each option:

1. Requiring all loans to be paid back within a few weeks: This option would likely hinder economic growth rather than drive it. Requiring all loans to be paid back within a few weeks could create financial strain on borrowers, making it difficult for businesses and individuals to invest in and sustain economic activities. Short repayment periods may limit the ability of borrowers to undertake long-term projects or make significant investments, which are often crucial for economic growth.
2. Providing loans and financial services to corporations: This option is more aligned with driving economic growth. By offering loans and financial services to corporations, a retail bank can support businesses in expanding their operations, investing in new projects, and creating jobs. This can contribute to economic development by fostering innovation, productivity, and overall economic activity.
3. Keeping all deposited funds in reserve at all times: If a bank were to keep all deposited funds in reserve at all times, it would likely limit its ability to lend money and provide financial services to individuals and businesses. This conservative approach may ensure the safety of deposited funds, but it may not actively contribute to economic growth since the funds would not be circulating in the economy through loans and investments.
4. Offering affordable mortgage loans to home buyers: Providing affordable mortgage loans to home buyers can stimulate economic growth in multiple ways. It encourages home ownership, which is a key aspect of wealth creation for individuals. Additionally, the real estate market plays a significant role in the economy, and affordable mortgage loans can boost demand for housing, create jobs in the construction sector, and stimulate related industries.

In summary, option b (providing loans and financial services to corporations) and option d (offering affordable mortgage loans to home buyers) are more likely to contribute positively to economic growth compared to options a and c.