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The correct option when a financial intermediary provides liquid financial assets in the form of deposits to lenders and uses their funds to finance the illiquid investment spending needs of borrowers.
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Answer to Problem 5MCQ
From the available options, the correct option is there is a bank.
Explanation of Solution
When a financial institution provides liquid financial assets as deposits to lenders and then uses their deposits to further finance the illiquid investment of borrowers, then this institution would be a bank. This is because a bank is an institution that accepts deposits of people and then use these deposits to further finance the borrowers who need loan or credit. It cannot be a pension fund, life insurance company, corporation, or mutual fund because they do not take deposits to use that money for further financing services.
Therefore, the correct option is b (bank) and all other options are incorrect.
Introduction: Financial system refers to a set of financial institutions that offers the exchange of funds, insurance, and deposits such as banks, insurance companies, etc.
Chapter 22 Solutions
Krugman's Economics For The Ap® Course
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