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Chapter 4: Q17 (page 104)

How do economists define equilibrium in financial

markets?

Short Answer

Expert verified

Equilibrium in financial markets is determined when market demand for funds = market supply of funds, and the respective curves intersect.

Step by step solution

01

: 

Market Equilibrium is an economic state in which market demand & market supply are balanced & prices are stable.

In case of financial markets also, equilibrium is determined as per market demand & market supply of funds.

Market demand for funds is inversely related to their price ie interest rate. Market Supply of funds is directly related to their price ie interest rates.

02

: 

Market Supply curve is upward sloping and market demand curve is downward sloping.

Equilibrium is determined where market demand = market supply, and demand & supply curves intersect.

The point of intersection gives equilibrium interest rate on y axis, and equilibrium quantity of funds demanded & supplied on x axis.

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Most popular questions from this chapter

In the labor market, what causes a movement along the supply curve? What causes a shift in the supply curve?

Name some factors that can cause a shift in the

demand curve in labor markets.

What is the “price” commonly called in the labor

market?

Suppose that a 5% increase in the minimum wage causes a 5% reduction in employment. How would this affect employers and how would it affect workers? In your opinion, would this be a good policy?

Identify the most accurate statement. A price floor will have the largest effect if it is set:

a. substantially above the equilibrium price

b. slightly above the equilibrium price

c. slightly below the equilibrium price

d. substantially below the equilibrium price
See all solutions

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