Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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Textbook Question
Chapter 27, Problem 6SCQ
Imagine that you are in the position of buying loans in the secondary market (that is, buying the right to collect the payments on loans) for a bank or other financial services company. Explain why you would be willing to pay more or less for a given loan If:
- The borrower has been late on a number of loan payments
- Interest rates In the economy as a whole have risen since the bank made the loan
- The borrower Is a firm that has just declared a high level of profits
- Interest rates in the economy as a whole have fallen since the bank made the loan
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Table shows the amount of savings and borrowing in a market, measured in millions of dollars, at various interest rates. What is the equilibrium interest rate and quantity in the capital financial market? Now, imagine the supply curve shifts so that there will be $50 million less supplied at every interest rate. Calculate the current and the new equilibrium interest rate and quantity, and explain the situation: the reasons of decrease of supply and what new equilibrium mean.
Interest rate
Qs
Qd
5
200
470
6
270
320
7
320
320
8
350
300
9
400
200
10
500
100
Suppose that a new customer opens a checking account and a saving account, placing $50,000 in each. Later, the bank makes a loan of $100,000 to a business firm. For this bank,
OPTIONS:
assets remained unchanged but liabilities increased by $100,000 because of the loan.
assets increased by $100,000 because the checking and saving accounts are assets, and liabilities increased by $100,000 because the loan is a liability.
assets increased by $100,000 because the loan is an asset, and liabilities increased by $100,000 because the checking and saving accounts are liabilities.
assets increased by $50,000 because the saving account is an asset, while liabilities increased by $50,000 because the checking account is a liability.
Chapter 27 Solutions
Principles of Economics 2e
Ch. 27 - In many casinos, a person buys chips to use for...Ch. 27 - Can you name some item that is a store of value,...Ch. 27 - If you are out shopping for clothes and books,...Ch. 27 - For the following list of items, indicate If they...Ch. 27 - Explain why the money listed under assets on a...Ch. 27 - Imagine that you are in the position of buying...Ch. 27 - What are the four functions that money serves?Ch. 27 - How does the existence of money simplify the...Ch. 27 - What is the double-coincidence of wants?Ch. 27 - What components of money do we count as part of...
Ch. 27 - What components of money do we count in M2?Ch. 27 - Why do we call a bank a financial intermediary?Ch. 27 - What does a balance sheet show?Ch. 27 - What are a banks assets? What are its liabilities?Ch. 27 - How do you calculate a banks net worth?Ch. 27 - How can a bank end up with negative net worth?Ch. 27 - What is the asset-liability time mismatch that all...Ch. 27 - What is the risk if a bank does not diversify its...Ch. 27 - How do banks create money?Ch. 27 - What is the formula for the money multiplier?Ch. 27 - The Bring it Home Feature discusses the use of...Ch. 27 - Imagine that you are a barber in a world without...Ch. 27 - Explain why think the Federal Reserve Bank tracks...Ch. 27 - The total amount of U.S. currency in circulation...Ch. 27 - Explain the difference between how you would...Ch. 27 - Should banks have to hold 100 of their deposits?...Ch. 27 - Explain what will happen to the money multiplier...Ch. 27 - What do you think the Federal Reserve Bank did to...Ch. 27 - If you take 100 out of your piggy bank and deposit...Ch. 27 - A bank has deposits of 400. It holds reserves of...Ch. 27 - Humongous Bank is the only bank in the economy....
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- The table below shows the amount of savings and borrowing in a market for loans to purchase homes, measured in millions of dollars, at various interest rates. InterestRate QuantitySupplied QuantityDemanded5% 98 2216% 129 1917% 160 1608% 178 1429% 196 12410% 214 106 What is the equilibrium interest rate and quantity of loaned funds? r = % Q = Suppose there is a decrease in demand of money, what will happen to interest rates and quantity? Increase in Interest Rates, Increase in Quantity?Increase in Interest Rates, Decrease in Quantity?Decrease in Interest Rates, Increase in Quantity?Decrease in Interest Rates, Decrease in Quantity?arrow_forwardIn the mid 1800's, grain sellers in Chicago would deliver their grain to warehouses and receive a paper receipt that represented their claim on the grain in storage. These receipts became so widely used that grain traders began to use them as money, and they would use the warehouse receipts to settle debts and as collateral to secure short-term loans. Despite their widespread use as a form of currency, the warehouse receipts were not fiat money because: A. Grain is a commodity, so the receipts were commodity money and not fiat money B. The receipts were not legal tender formally recognized by a governmentarrow_forwardSuppose Eric would like to use $6,000 of his savings to make a financial investment. One way of making a financial investment is to purchase stock or bonds from a private company. Suppose TouchTech, a hand-held computing firm, is selling bonds to raise money for a new lab—a practice known as (a. equity, b. debt) finance. Buying a bond issued by TouchTech would give Eric (a. a claim to partial ownership in, b. an IOU, or promise to pay, from) the firm. In the event that TouchTech runs into financial difficulty, (a. Eric and the other bondholders, b. the stockholders) will be paid first. Suppose instead Eric decides to buy 100 shares of TouchTech stock. Which of the following statements are correct? Check all that apply. a.TouchTech earns revenue when Eric purchases 100 shares, even if he purchases them from an existing shareholder. b. The Dow Jones Industrial Average is an example of a stock exchange where he can purchase TouchTech stock. c. An increase in the…arrow_forward
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