<p>The lender is typically supplying loanable funds in the form of ‘savings’. I.e. money she wouldn’t spend until a future date. But the market for loanable funds allows one to earn interest on these savings rather than laying dormant (think about when people would store money under their mattresses). So, with this surplus of funds, another can make use of these funds (for a price, interest) and increase the amount of spending they themselves do. Hence, the total amount of spending would increase because if that person hadn’t borrowed money to increase their spending, the money would sit in savings.</p>

CC BY-SA 4.0
2019-08-25T23:07:07.393Z
2019-08-25T23:07:07.393Z
Brennan
<p>Someone was saying: "Why is credit so important? Because when a borrower receives credit (loan), he's able to increase spending. Spending drives the economy. This is because one person's spending is another person's income ". </p>

<p>I think he didn't look at the lender's prospective. When a lender gives his money to someone else, his spending will decrease. So the economy is balanced and this will not drive the economy. The same amount is spent just by a different person. </p>

<p>Am I right?  What am I missing? </p>

<credit>
Why do loans drive the economy?
user2824371
# Why do loans drive the economy?

(Asked by: username_0 on 2019-08-25)

Someone was saying: "Why is credit so important? Because when a borrower receives credit (loan), he's able to increase spending. Spending drives the economy. This is because one person's spending is another person's income ".

I think he didn't look at the lender's prospective. When a lender gives his money to someone else, his spending will decrease. So the economy is balanced and this will not drive the economy. The same amount is spent just by a different person.

Am I right? What am I missing?

**Tags:** credit

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## 1 answers

### Answer by username_1 on 2019-08-25. Score: 2 | Accepted answer

The lender is typically supplying loanable funds in the form of ‘savings’. I.e. money she wouldn’t spend until a future date. But the market for loanable funds allows one to earn interest on these savings rather than laying dormant (think about when people would store money under their mattresses). So, with this surplus of funds, another can make use of these funds (for a price, interest) and increase the amount of spending they themselves do. Hence, the total amount of spending would increase because if that person hadn’t borrowed money to increase their spending, the money would sit in savings.


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