Question

Which of the following correctly explains the process of savings translating into an increase in national income?

• A. Savings → Loans → Buy capital goods → Hire employees → Increase production → Increase national income
• B. Savings → Loans → Hire employees → Increase production → Increase national income
• C. Savings → Buy capital goods → Hire employees → Increase national income
• D. Savings → Buy capital goods → Hire employees → Increase production → Increase national income

Answer 1

The correct option is A Savings → Loans → Buy capital goods → Hire employees → Increase production → Increase national income

Common people keep their savings in banks. Entrepreneurs use these savings when they avail loans from the banks. This loaned money is used for the creation of new firms, factories, tools, and machines. All of these are used for the future production of goods. In return, more people are hired. Such employment increases the income of the workers. An increase in production results in an increase in national income.