How does a weak financial sector intensify the problems created by volatile capital flows?
What will be an ideal response?
For example, consider a banking sector that borrows internationally and lends locally. If the funds obtained in the international market are short-term and are used to fund long-term loans such as real estate, problems arise when the international loans must be repaid. If lenders believe that there is a problem with a borrowing bank, they refuse to roll over the debt, creating a liquidity problem if the bank's assets are tied up in real estate loans. In the short run, real estate is relatively illiquid and cannot be used to make a payment. When a number of banks are confronted with similar problems, their attempt to unload real estate depresses prices even further and undermines the solvency of the banking system since every bank with real estate investments is suddenly holding a portfolio of declining value. In turn, this reduces the ability of the banking system to lend, which further reduces investment and consumption.
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In the above figure, the market is at its equilibrium. Area B is equal to
A) consumer surplus. B) total revenue. C) marginal benefit. D) producer surplus. E) total surplus.
When the economy is at full employment and inflation develops, the government creates a surplus budget by cutting its own spending and raising taxes. The Fed would
a. reduce the legal reserve requirement, increase the discount rate, and buy securities on the open market b. reduce the legal reserve requirement, reduce the discount rate, and sell securities on the open market c. reduce the legal reserve requirement, reduce the discount rate, and buy securities on the open market d. increase the legal reserve requirement, reduce the discount rate, and sell securities on the open market e. increase the legal reserve requirement, increase the discount rate, and sell securities on the open market
Marginal revenue for a monopolist
A. decreases as price decreases because each unit of the good is being sold for a lower price. B. increases as output increases because demand is inelastic. C. is constant and equal to price. D. increases as price decreases because more people are willing and able to purchase the good at a lower price.
Which of the following is correct?
a. Any event that changes the supply or demand for labor must change the value of the marginal product. b. A profit-maximizing firm hires workers so long as the wage rate exceeds the value of the marginal product of labor. c. An increase in the supply of labor increases both employment and wages. d. A decrease in the demand for labor decreases wages but increases employment.