Banks and other ﬁnancial institutions
A) are the primary investors in equipment, factories, and other capital goods.
B) lack relevance in the modern economy because they focus primarily on ﬁnancial assets and generally do not engage in real investment activity.
C) promote economic growth by helping to direct household savings to businesses that want to invest.
D) often hinder economic activity by creating barriers between household savers and ﬁrms wanting to invest in capital goods.

Question

Quizplus · Accepted Answer

Banks and other financial institutions play a crucial role in promoting economic growth by channeling household savings to businesses that want to invest in capital goods. This intermediation function helps to direct funds from those who have excess savings to those who have a productive use for them. As a result, banks and financial institutions facilitate investment, which is a critical driver of economic activity and growth.

Banks and Other ﬁNancial Institutions