A ) Consider an economy where private businesses/household did not have access to funds. B) Consider...

A ) Consider an economy where private businesses/household did not have access to funds.

B) Consider an economy where private businesses/household did not have avenue to invest their surplus funds

C) What will happen to the economic activity and the economy?

Expert Solution

If an economy is such that the private businesses/households did not have access to funds, in this case, there will be no private investment or capital formation and the level of consumption expenditure will be low. This is because if the households/private businesses do not have access to funds, this implies they cannot apply for loans. Thus, private businesses cannot invest in business and consumption expenditure will also be affected as lesser loans to consumers imply lesser indulge in durable or semi durable consumption expenditure like cars, etc. Also, residential investment will be less.

The economy whereby the consumers and private businesses did not have avenues to invest must be the economy where most property is publically owned (or owned by the state) and the consumers are not affected by materialism. In such case, economic activity will be quite low and the economic variables like GDP will be low. In the economy, people will usually produce for themselves and produce lesser surplus.

Rahul Sunny answered 7 months ago

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