A Recession Which Causes People To Use Their Savings To Pay For Day To Day Expenses Would Most Likely?

a) increase the supply of loanable funds.
b) decrease the supply of loanable funds.

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One Response to A Recession Which Causes People To Use Their Savings To Pay For Day To Day Expenses Would Most Likely?

  1. Big Al says:
    January 4, 2010 at 11:03 pm

    Banks loan money based on the amount of money that their customers put in their account.
    If Customer A has a savings account of $1,000 and you muliply that by 1,000 customers, the bank now has $1,000,000 on deposit. Their ability of a bank to loan money is based on the amount of money that they have on deposit. If people reduce the money in their savings, this reduces the amount of money the bank has on deposit and makes it harder for them to loan money.
    The answer is B) Decreases the supply of loanable funds.