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 which 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 fully correct in thinking that her savings are removed from the circular flow. When she deposits her money into a savings account, the bank will use that money to make loans to other customers or invest in other financial instruments, which puts her savings back into the circular flow. Therefore, her savings are still part of the economy's overall circulation of money.

Gail Nelson Begins Her First Job After Graduating from College