Why might the supply of loans increase as interest rates fall?
What will be an ideal response?
There are a number of reasons for this. First, at lower interest rates the borrower's loan payments will be lower, and the percentage that loan payments make up of a borrower's income will be reduced, making the borrower a better risk. Also, the lower interest rate should increase the borrower's net worth by increasing asset values and reducing interest expense, thereby increasing profits. Finally, with a higher net worth, the moral hazard problem is reduced. The borrower is less likely to take on greater risk if he/she has a higher net worth in the firm since he/she has more to lose.
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If the Federal Reserve wants to prevent a recession, it should ________.
A. decrease the money supply to raise interest rates and lower aggregate demand B. decrease the money supply to lower interest rates and increase aggregate demand C. increase the money supply to raise interest rates and lower aggregate demand D. increase the money supply to lower interest rates and raise aggregate demand
A change in technology or the relative prices of the inputs used in a production process would cause a manager's choice of inputs to use in the production process to change as well
Indicate whether the statement is true or false
The natural rate of employment
a. will change with changes in the long run aggregate supply curve. b. will be a level such that the expected real wage equals the actual real wage. c. will be at a level where the actual and expected price levels are equal. d. both a and c. e. all of the above.
A budget philosophy using fiscal policy to achieve the economy's potential GDP, rather than balancing budgets either annually or over the business cycle, is termed: a. budget finance
b. functional finance. c. crowding out. d. crowding in. e. deficit finance.