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Effects of Increased Bank Lending on the Economy

Question

Discuss whether an increase in bank lending will benefit an economy.

Category:

Macroeconomic Factors and Policies

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Preview Answer

I. 🍃Introduction
A. Definition of bank lending
B. Importance of bank lending in an economy
C. Purpose of the discussion

II. Benefits of an increase in bank lending
A. Enables households to borrow more
➡️1. Increases spending
➡️2. Improves living standards
➡️3. Helps in buying housing and other necessities
➡️4. Facilitates education
➡️5. Reduces poverty
B. Enables firms to borrow more
➡️1. Expands output
➡️2. Raises employment
➡️3. Increases economic growth
➡️4. Improves capital equipment
➡️5. Lowers costs of production
➡️6. Lowers prices
➡️7. Increases exports

III. Drawbacks of an increase in bank lending
A. Increases consumer expenditure/total demand
➡️1. Causes inflation
➡️2. Demand-pull inflation
B. Increases spending on imports
➡️1. Increases current account deficit
➡️2. Results in imported inflation
C. Encourages households to get into debt
➡️1. Borrowing more than they can repay
D. Encourages inefficient firms to expand
➡️1. Rising costs
➡️2. Increasing prices

IV. 👉Conclusion
A. Summary of the discussion
B. Final thoughts on the impact of an increase in bank lending on an economy.

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