A. Everything else remaining unchanged, what is likely to happen to the credit demand curve of an economy if:
i. businesses in the economy see scope for growth and are planning to expand production in the future?
ii. households are pessimistic about future incomes?
iii. the government is planning to borrow money from financial institutions for investment in infrastructures?
b. Everything else remaining unchanged, what is likely to happen to the credit supply curve of an economy if firms tend to hold on to retained earnings instead of paying dividends?
a.
i. If businesses in the economy see scope for growth and are planning to expand production in the future, the credit demand curve of the economy is likely to shift to the right.
ii. If households are pessimistic about future incomes, they are unlikely to borrow more today as they may not be able to repay the loans in the future. This shifts the credit demand curve of the economy to the left.
iii. If the government is planning to borrow money from financial institutions to invest in infrastructures, the credit demand curve of the economy is likely to shift to the right.
b. If businesses hold on to retained earnings instead of paying dividends, they generate savings. This shifts the credit supply curve to the right.
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When the price of a good is below the equilibrium price,
A. suppliers are unable to sell as many units as they want; they will cut output and lower prices. B. suppliers can sell as many units as they can produce; they will increase production and raise prices. C. the demand curve shifts down to reach an equilibrium price. D. the supply curve will shift up to reach an equilibrium price.
An argument in favor of fractional-reserve banking is that
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Mention some of ways in which insurers control the problem of moral hazard
Firms pay celebrities to endorse their products because they believe this will increase the demand for these products.
a. true b. false