Because FIs remove imperfections between households and corporations, households tend to save more than they would if FIs did not exist.

Question

Quizplus · Accepted Answer

Financial intermediaries (FIs) provide a means for households to deposit their excess funds, which can then be loaned out to corporations for investment purposes. This allows corporations to access additional funds for investment that may not have been available otherwise. As a result, households may feel more confident in saving money knowing that their funds are being put to productive use and earning interest. Thus, FIs tend to increase the amount of savings in the economy.

Because FIs Remove Imperfections Between Households and Corporations, Households Tend