Which of the following best explains how bank loans help a nation's economy?

• A. They increase government spending directly by funding public projects.
• B. They decrease consumer spending by encouraging saving over borrowing.
• C. They reduce the need for financial markets by eliminating the role of stocks and bonds.
• D. They provide businesses and individuals with access to capital, enabling investment and economic growth.

Answer: (D)

Verified step by step guidance

1. Understand the role of bank loans in an economy: Bank loans provide funds to businesses and individuals who need capital for various purposes such as investment, expansion, or consumption.
2. Recognize that access to capital is crucial for economic growth because it allows businesses to invest in new projects, hire more workers, and increase production.
3. Note that bank loans do not directly increase government spending; instead, they primarily facilitate private sector investment.
4. Understand that bank loans generally encourage spending and investment rather than saving, as borrowing provides immediate funds for economic activities.
5. Acknowledge that bank loans complement financial markets (stocks and bonds) rather than eliminate their role, by providing an additional source of funding.