How do banks potentially make economic downturns more severe and how do economic downturns contribute to the increased failure of banks?
What will be an ideal response?
When an economy begins to slow some people lose their jobs and/or their incomes are reduced. As a result, these individuals may default on their loans, reducing the value of a bank's assets and also reducing the bank's capital, especially if the loans are in default. As bank capital is reduced lending will also be reduced which will further slow the economy as consumer durable good spending will fall, as will investment spending. But the slowing of the economy will also continue to push more loans into default and further reduce bank capital leading to even more bank failures.
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Banks would be expected to minimize holding excess reserves because this practice is
A. illegal.
B. not profitable.
C. technically difficult.
D. subject to a stiff excess reserves tax.
A year-long drought that destroys most of the summer's crops would be considered a:
A. short-run supply shock. B. long-run demand shock. C. long-run supply shock. D. short-run demand shock.
The value of a producer's output minus the value of the inputs it purchases from other producers is called the producer's
A. surplus. B. gross product. C. value added. D. profit.
Labor productivity increased so much in the second half of the 1990s because of
A. cheaper foreign imports used in production. B. improved information and communications technologies. C. higher levels of educational attainment by workers. D. increased foreign competition.