MANAGERIAL/ECON+BUS/STR CONNECT ACCESS
9th Edition
ISBN: 2810022149537
Author: Baye
Publisher: MCG
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Chapter 14, Problem 21PAA
To determine
To compare: The
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Suppose that, prior to the passage of the Truth in Lending Simplification Act and Regulation Z, the demand for consumer loans was given by Qdpre-TILSA = 8 -80P (in billions of dollars) and the supply of consumer loans by credit unions and other lending institutions was QSpre-TILSA = 4 + 80P (in billions of dollars). The TILSA now requires lenders to provide consumers with complete information about the rights and responsibilities of entering into a lending relationship with the institution, and as a result, the demand for loans increased to Qdpost-TILSA = 22 -80P (in billions of dollars). However, the TILSA also imposed “compliance costs” on lending institutions, and this reduced the supply of consumer loans to QSpost-TILSA = 2 + 80P (in billions of dollars).
Based on this information, compare the equilibrium price and quantity of consumer loans before and after the Truth in Lending Simplification Act.(Note: Q is measured in billions of dollars and P is the interest…
Suppose that, prior to the passage of the Truth in Lending Simplification Act and Regulation Z,the demand for consumer loans was given by Qd pre–TILSA = 12 – 100P (in billions of dollars) and the supply of consumer loans by credit unions and other lending institutions was Qspre–TILSA = 5 + 100P (in billions of dollars). The TILSA now requires lenders to provide consumers with complete information about the rights and responsibilities of entering into a lending relationship with the institution, and as a result, the demand for loans has increased to Qdpost–TILSA=18–100P (in billions of dollars). However, the TILSA also imposed “compliance costs” on lending institutions, and this reduced the supply of consumer loans to Qspost–TILSA = 3 + 100P (in billions of dollars). Based on this information, compare the equilibrium price and quantity of consumer loans before and after the Truth in Lending Simplification Act.
Suppose that, prior to the passage of the Truth in Lending Simplification Act and Regulation Z, the demand for consumer loans was given by Qdpre-TILSA = 14 -90P (in billions of dollars) and the supply of consumer loans by credit unions and other lending institutions was QSpre-TILSA = 6 + 110P (in billions of dollars). The TILSA now requires lenders to provide consumers with complete information about the rights and responsibilities of entering into a lending relationship with the institution, and as a result, the demand for loans increased to Qdpost-TILSA = 22 -90P (in billions of dollars). However, the TILSA also imposed “compliance costs” on lending institutions, and this reduced the supply of consumer loans to QSpost-TILSA = 2 + 110P (in billions of dollars).
Based on this information, compare the equilibrium price and quantity of consumer loans before and after the Truth in Lending Simplification Act.(Note: Q is measured in billions of dollars and P is the interest…
Chapter 14 Solutions
MANAGERIAL/ECON+BUS/STR CONNECT ACCESS
Ch. 14 - Prob. 1CACQCh. 14 - Prob. 2CACQCh. 14 - Prob. 3CACQCh. 14 - Prob. 4CACQCh. 14 - Prob. 5CACQCh. 14 - Prob. 6CACQCh. 14 - Prob. 7CACQCh. 14 - Prob. 8CACQCh. 14 - Prob. 9CACQCh. 14 - Prob. 10CACQ
Ch. 14 - Prob. 11PAACh. 14 - Prob. 12PAACh. 14 - Prob. 13PAACh. 14 - Prob. 14PAACh. 14 - Prob. 15PAACh. 14 - Section 16(a) of the Securities and Exchange Act...Ch. 14 - Prob. 17PAACh. 14 - Prob. 18PAACh. 14 - Prob. 19PAACh. 14 - Prob. 20PAACh. 14 - Prob. 21PAACh. 14 - Prob. 22PAACh. 14 - Prob. 23PAA
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- Which of the following laws suggests that attempts by a central bank to regulate the level of lending by banks imposing certain controls can be circumvented by the banks searching alternatives out of the regulatory preview'? (a) Flag of Convenience Law (b) Swiss Syndrome Law (c) Goodhart's Law (d) Okun's Lawarrow_forwardDiscuss the Loss of Transparency and Consumer Sovereigntyarrow_forwardIn general, ordinary people only know that bank products and services are limited to conventional savings and loans, even though there are many more. There are many interesting banking products that can be used, including Islamic bank products or Islamic banking products that have not been widely known by the public. Currently, there are several types of Islamic bank products that are tailored to the needs and developments of the times. It should be noted that Islamic banks do not only serve hajj savings or umrah savings, but there are also several other products, including business capital loans. Explain what you know about Islamic productsarrow_forward
- Why are financial intermediaries the most heavily regulated businesses in the economy? Explain why stock market is an important factor in business investment decisions? What is inflation? What explains inflation? If there is a recession, will it be more difficult to find a job when you graduate? Explain. What are the six types of regulations the government employs in an attempt to ensure the soundness of our financial intermediaries? Explain. Explain the difference between debt and equity markets. primary and secondary markets, exchange and over the counter markets and money and capital markets. What is the difference between foreign bond and a Eurobond? Which institutions are subject to Federal Deposit Insurance corporation (FDIC) regulations, and what is the nature of the regulations? What are the reasons for high transaction costs to exist in a barter economy? What separates the assets included in M1 from the assets included in M2? Does it matter what definition of money policy…arrow_forwardWhich of the following is NOT typically a role for a financial intermediary...? make public financial statements of borrowers evaluate the riskiness of lending to borrowers pool funds from lenders monitor the financial conditions of borrowersarrow_forwardDefine the term the Truth in Lending Act?arrow_forward
- Suppose the credit market in Triumph, Illinois is described by the schedule shown below. Local financial regulators have set the maximum interest rate for commercial credit at 9%. Interest Rate Quantity of credit supplied Quantity of credit demanded 5% $800,000 $3,500,000 7% $1,100,000 $3,100,000 9% $1,500,000 $2,600,000 11% $2,000,000 $2,000,000 13% $2,600,000 $1,300,000 15% $3,300,000 $500,000 Illustrate this market in a supply and demand graph. What is the market equilibrium interest rate? How many fewer borrowers are there at the mandated interest rate than there would be at equilibrium.arrow_forwardThe central bank (CB) decided to increase the discount rate on loans it makes to commercial banks. This results in:arrow_forwardUnlike commercial banks, savings and loans, andmutual savings banks, credit unions did not have restrictions on setting up branches in other states. Why,then, are credit unions typically smaller than the otherdepository institutions?arrow_forward
- Banking regulation suffers from the principal-agent problem. Describe how this problem relates to regulators and politicians.arrow_forwardWhich of the following best defines a financial intermediary? a collection of stocks and bonds issued to investors an asset sold by a company which entitles the buyer to partial ownership a claim by a buyer to a future payment by a seller a financial institution that transforms investor funds into financial assetsarrow_forwardConstruct a well-labeled diagram of supply and demand in the market for loans that depicts an equilibrium with credit rationing. Be sure to clearly identify the market interest rate, the quantity of loans supplied and the quantity of loans demanded.arrow_forward
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