The financial system works to channel scarce loanable funds (credit) to their most productive uses only if individuals and businesses are willing to save and trust those savings to financial institutions and only if other businesses and individuals are willing to rely on the financial system to provide credit to support their consumption and investment.

Question

Quizplus · Accepted Answer

The financial system efficiently allocates scarce loanable funds to their most productive uses by facilitating savings from individuals and businesses, who trust financial institutions with their money, and by providing credit to others for consumption and investment, assuming these parties are willing to engage with the financial system for these purposes.

The Financial System Works to Channel Scarce Loanable Funds (Credit)