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Commercial Banks' Impact on the Economy


Discuss the advantages and disadvantages of the activities of commercial banks to an economy.


Economic Systems

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I. 🍃Introduction
- Definition of lending and its importance in the economy
- Brief overview of the advantages and disadvantages of lending

II. Advantages of lending to an economy
- Lending to consumers: increasing consumption, raising living standards
- Lending to firms: enabling investment, increasing employment, expanding into international markets, improving the current account of the balance of payments
- Attracting MNCs: providing a range of services to these companies
- Banks employing many people: keeping unemployment low

III. Disadvantages of lending to an economy
- Encouraging saving: decreasing consumption/total demand
- Banks failing: losing customers' money, risking damage to the economy/recession
- Lending to risky businesses: causing fluctuations in output
- Lending to individuals who cannot repay: pushing them into debt
- Charging high interest rates: increasing firms' costs of production, making it difficult for individuals to repay
- Lending for purchase of imports: worsening the current account
- Risk of inflation: if banks lend too much

IV. 👉Conclusion
- Summary of the advantages and disadvantages of lending to an economy
- Importance of responsible lending practices for the overall health of the economy.

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