1a) Explain the characteristics of the three types of depository institutions. Depository institution is a firm that takes deposits from households and firms and makes loans to other households and firms. There are three types of depository institutions that are commercial banks, thrift institutions and money market mutual funds. i) Commercial banks Is a firm that is licensed by the Comptroller of the Currency or by a state agency to receive deposits and make loans. The aim of a bank is to maximize the net worth of its stockholders. To achieve this objective, the interest rate at which a bank lends exceeds the interest rate at which it borrows. But a bank must perform a delicate balancing act. Besides, a bank must be prudent in …show more content…
1d) A bank receives new deposits equal to $200,000 and the desired reserve ratio is 10 percent. What is the amount of new loans the bank can make? New deposits = $200,000 , desired reserve ratio = 10% Reserve = 10% x $200,000 = $20,000 Loans the bank can make = Deposit – Reserve = $200,000 - $20,000 = $180,000 2a) List and explain the three institutions crucial as preconditions for economic growth. The three institutions crucial as preconditions for economic growth are markets, property rights and monetary exchange. i) Market From market, buyers and sellers will be able to get information and do business with each other. Besides, buyers and sellers will get signals from market prices so that they can create incentives to increase or decrease the quantities demanded and supplied. Markets enable people to specialize and trade and to save and invest. However, markets need property rights and monetary exchange. ii) Property rights Are the social arrangements that govern the ownership, use, and disposal of factors of production and goods and services. They include the rights to physical property such as land, building, and capital equipment, rights to financial property that claims by one person against another, and rights to intellectual property such as inventions. Clearly established and enforced property rights give people an assurance that a
-The role and significance of prices in the market economy has to do with supply and demand. If there are the same amount of buyers as products, the price will settle. If there are more buyers than products, the price of the product will rise. And, if there are more products than buyers, the price of the product will decrease. This occurs until the supply of the product matches the demand of the product.
Suppose a bank has $10,000 in deposits and $8,000 in loans. It has loaned out all it can. It has a reserve ratio of C
Market economy is an economy system the individuals are owned and controlled most of the resources and are allocated through voluntary market transactions governed by the interaction of supply and demand. The presence of market economy will make a gap or disparity in society. It is happened because people are free to play in the market. In addition, there is no interference from the government and it will lead to the exploitation. It has lead to the market economy become not an option for a country to stay competitive. Competition in the marketplace provides the best possible product to the customer at the best price. When a new product is invented, it usually starts out at a high price, once it is in the market for a period of time, and other companies begin to copy it, the price goes down as new, similar products emerge.
Property: The right to claim and hold property; When it has been laboured for, one encloses it for greater individual profit the profit of the community of Man, it has been laboured for – Natural means of ownership one encloses it – The process of holding legal “deed” for greater individual profit – to build investment equity and avoid poverty of waste the profit of the community of Man – Moral commitment to Human Development (Locke: 1689).
2. What do they consider the relationship between property and
Economic Development: Growth is associated with structural, social change and change in the important institutions of the economy.
There are various categories of banking; these include retail banking, directly dealing with small businesses and persons. Commercial and Corporate banking which offers services to medium and large businesses (Koch & MacDonald 2010). Private banking, deals with individuals, offering them one on one service. The last category is investment banking. These help clients to raise capital and often invest in financial markets. Most global banking institutions provide all these services combined. With all these institutions in existence within the same localities and offering similar services, there is a need to regulate the industry so as to protect the consumer and provide fair working environment for all banks (Du & Girma, 2011).
commercial banks Thrift Institution are depository institution, banks basically that offer savings and loan they are mutual savings banks and credit unions.
Banks are institutions in which people put their money for safekeeping, to save, to use to pay their bills, or to earn interest on. Banks are allowed to use that money to make loans and earn interest for the bank's’ owners. Different types of banks offer different types of services. For example, commercial banks originally just served businesses, and savings banks and credit unions were used by individuals, especially those who couldn’t qualify for loans at regular banks. This is no longer the case. Although commercial banks and thrift institutions used to serve different purposes, today they all offer many of the same types of services including bank accounts, loans, credit, certificates of deposits (CDs), and much more.
2. Markets are usually a good way to organise economic activity- firms and households interact in the marketplace, where prices guide their decisions.
14-7. When a bank is deficient in reserves, it can go to the federal funds market to borrow what it needs from another bank.
17. Suppose the money multiplier in the U.S. is 3. Suppose further that if the Federal Reserve changes the discount rate by 1 percentage point, banks change their reserves by 300. To increase the money supply by 2700 the Federal Reserve should
Assessment of the Statement that Property is a Power Relationship Between People Property is the right to possess, enjoy or use a determinant thing, and includes the right of excluding others from doing the same. The concept of ownership or property has no single or widely accepted definition. Like any other concept it has great weight in public discourse and the popular usage varies broadly. Property is frequently conceived as a 'bundle of rights and obligations.' Property is stressed as not a relationship between people and things, but a relationship between people with regard to things.
Different market decisions determine how an economy is run. There are several different factors that account for how markets make their decisions, which determines how they function. The theory of markets mostly depends on supply and demand. However, it is key to note that there is a difference in demand/supply and quantity demanded/supplied. A demand is how much the buyer plans to purchase at various markets prices and the quantity demanded is what the buyer actually purchases at a particular price. Supply is the producer or the seller’s plan of the amount the seller will make available at different market prices and the quantity supplied is the actual amount that the seller makes available at a particular market price. It is important to
-Depository institutions are those that receive their money from customer deposits. Non-depository institutions are those that receive their money from other sources. Depository takes money from their customer accounts non-depository does not.