What are the economic functions of depository institutions?
What will be an ideal response?
Depository institutions provide four economic services. First, they create liquidity, that is, bank deposits are highly liquid so that they are easily convertible into money. Second, they minimize cost of obtaining funds because borrowing from one bank is cheaper than borrowing from a variety of lenders. Third, they minimize cost of monitoring borrowers because depository institutions specialize in monitoring borrowers. Fourth, they pool risk by making loans to many borrowers.
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The self-correcting property of the economy means that output gaps are eventually eliminated by:
A. increasing or decreasing potential output. B. government policy. C. decreasing inflation only. D. increasing or decreasing inflation.
What are in-kind transfers, and why are they more target-efficient than cash transfers?
What will be an ideal response?
If a regulatory agency mandates that a natural monopoly charge a price equal to its average cost:
A. the firm will eventually exit the industry. B. the firm will earn economic profits greater than zero. C. other firms will find it profitable to enter this industry. D. the firm will earn economic profits equal to zero.
Agricultural subsidies are known to cause overproduction and create other problems. Are there benefits from such subsidies? Explain
What will be an ideal response?