Chapter 4: Q. 5 (page 103)
In the financial market, what causes a movement along the supply curve? What causes a shift in the supply curve?
Movement along the supply curve- changes in the roi (rate of interest)
Shift of supply curve- any other change, like income, future expectations of the need of capital, etc.
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Are households demanders or suppliers in the
goods market? Are firms demanders or suppliers in the
goods market? What about the labor market and the
financial market?
During a discussion several years ago on building a pipeline to Alaska to carry natural gas, the U.S. Senate passed a bill stipulating that there should be a guaranteed minimum price for the natural gas that would flow through the pipeline. The thinking behind the bill was that if private firms had a guaranteed price for their natural gas, they would be more willing to drill for gas and to pay to build the pipeline.
a. Using the demand and supply framework, predict the effects of this price floor on the price, quantity demanded, and quantity supplied.
b. With the enactment of this price floor for natural gas, what are some of the likely unintended consequences in the market?
c. Suggest some policies other than the price floor that the government can pursue if it wishes to encourage drilling for natural gas and for a new pipeline in Alaska.
Which of the following changes in the financial market will lead to an increase in the quantity of loans made and received: a. a rise in demand b. a fall in demand c. a rise in supply d. a fall in supply
Predict how each of the following economic changes will affect the equilibrium price and quantity in the financial market for home loans. Sketch a demand and supply diagram to support your answers.
a. The number of people at the most common ages for home-buying increases.
b. People gain confidence that the economy is growing and that their jobs are secure.
c. Banks that have made home loans find that a larger number of people than they expected are not repaying those loans. d. Because of a threat of a war, people become uncertain about their economic future.
e. The overall level of saving in the economy diminishes.
f. The federal government changes its bank regulations in a way that makes it cheaper and easier for banks to make home loans.
If the government imposed a federal interest rate ceiling of 20% on all loans, who would gain and who would lose?
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