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| When the financial market performs the allocative function well, what will be the consequences? |
The rate of return offered to households would be higher Scarce resources are allocated to those firms which have the highest productivity for the economy. The business firms will earn higher amount of profit Both 1 and 2 |
| Both 1 and 2 |
| A financial market helps to link the savers and the investors by mobilizing funds between them. In doing so it performs what is known as an allocative function. It allocates or directs funds available for investment into their most productive investment opportunity. When the allocative function is performed well, two consequences follow: • The rate of return offered to households would be higher • Scarce resources are allocated to those firms which have the highest productivity for the economy. |
