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CSEET · Economic and Business Environment · Indian Financial Markets

Which of the following is the most accurate description of how an efficient financial system supports economic growth?

An efficient financial system supports growth by mobilising savings from surplus units and channelling them to deficit units for productive investment, which raises capital formation. It does not fix commodity prices, keep savings idle or limit investment to government securities.

  1. AIt transfers savings from surplus units to deficit units, channelling them into productive investment and thereby raising capital formationCorrect
  2. BIt fixes the prices of all goods and services to ensure stable inflation
  3. CIt ensures that every household's savings are kept as idle cash with banks
  4. DIt restricts investment to government securities so that private borrowing is avoided

Explanation

The key role of the financial system is mobilising savings and allocating them to productive uses, which increases capital formation and growth. It does not fix prices of goods, hold savings idle, or confine investment to government securities, so the other options are incorrect.

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