Explain what is meant by the phrase a bank's "balancing act."
What will be an ideal response?
Banks accept deposits and make loans with the funds they receive from the deposits. Banks profit if the interest rate they charge on their loans exceeds the interest rate they pay on their deposits. Loans are made for a specified length of time and cannot be called in before they are due. However, deposits can be withdrawn at any time by the depositors. Therefore a bank must perform a balancing act: It is risky to lend too much of the deposits and run the risk of mass withdrawals that would create a crisis for the bank. However, it is by making loans that the bank earns a profit.
You might also like to view...
Assume two people live in the same neighborhood, the same size house and earn identical incomes. Both are unmarried without children. How might one of them actually be poorer than the other?
What will be an ideal response?
Unbalanced oligopolies are not stable
Indicate whether the statement is true or false
Using the multiplier, we can easily calculate the effect of further changes in government spending.
What will be an ideal response?
A profit-maximizing monopsonist
A. hires fewer workers and pays its workers less than it would if it were operating in a competitive labor market. B. hires more minority workers than nonminority workers, but pays the minority workers less than the nonminorities. C. pays the same wage to all types of labor. D. substitutes low-skilled labor for high-skilled labor in the long run. E. hires an equal number of male and female workers and pays them the same wage.