Gail Nelson begins her first job after graduating from college and starts putting money away in a savings account. She believes she has removed this money from the circular flow between buyers and sellers that she studied in Introduction to Business. Is Gail correct?
A) Yes, by putting this money into a savings account, only she has access to the funds and they are no longer available to the circular flow.
B) No, even though she has saved this money, the bank will in turn invest the money back into the circular flow.
C) Yes, only direct investments into companies, such as purchasing ownership shares of that company, will put her savings back into the circular flow.
D) Yes, the circular flow focuses on businesses and government, and therefore Gail's savings have no impact on the circular flow.
E) No, because she earned this money from a company and because she paid taxes on it, it is always considered part of the flow.

Question

Quizplus · Accepted Answer

Gail is not entirely correct. By putting her money in a savings account, it is still a part of the circular flow because the bank will use this money to make investments or loans to other individuals and businesses, thus putting the money back into circulation. Therefore, money saved in a bank account is still part of the circular flow of the economy.

Gail Nelson Begins Her First Job After Graduating from College