Chapter 4.2, Problem 3R

To determine

The reason the allowance to borrow money by the people and businesses has been advantageous to the society and the economy

Explanation of Solution

The advantages of allowing people and the businesses to borrow money are stated below:

• The very basic and most important advantage is Credit creation. Without enough credit facility businesses and people altogether won’t be able to grow or survive. Allowing them with the borrowing facility, helps them achieve heights in the businesses.
• With the borrowing facility to the people, the growth in their businesses, make them purchase more for the production of the output which ultimately shows the increase in demand and is good for the gross domestic product of the economy as it increases the revenues.
• Financing the business using debt can be beneficial for the one who is borrowing as the interest he has to pay on the borrowed amount is tax deductible.

Economics Concept Introduction

Introduction:

To deal with everyday challenging economic situations, and to grow in such a dynamic world, people and businesses today need to borrow money.