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Chapter 4: Q. 8 (page 104)

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

Short Answer

Expert verified

Options a (a rise in demand ) and (c) is the correct response. Growth in financial market demand indicates that borrowers require more funds to meet their needs. A and C will enhance the number of loans available.

Step by step solution

01

Definition

Financial Markets:

The markets in a country that oversee the trading of derivatives and bonds at various times are referred to as financial markets. These markets are critical because they connect investors and businesses, providing the financial backing that businesses require to operate effectively in the market. In general, financial markets serve as a conduit between lenders and borrowers in the economy.

02

Step 2:

The correct answer is (a) (an increase in demand) and (c). Borrowers require more funds to meet their needs, as evidenced by rising financial market demand. A and C will increase the number of available loans. A and C will enhance the number of loans available. More people who want to borrow will result in more loans being handed out, and more people who want to lend will result in more loans being given out.

03

Conclusion

Therefore, increase borrowing, means demand will move to the right, indicating that we want to see an increase in overall demand.

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Most popular questions from this chapter

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?

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.

Imagine that to preserve the traditional way of life in small fishing villages, a government decides to impose a price floor that will guarantee all fishermen a certain price for their catch.

a. Using the demand and supply framework,

predict the effects on the price, quantity

demanded, and quantity supplied.

b. With the enactment of this price floor for fish, what are some of the likely unintended

consequences in the market?

c. Suggest some policies other than the price floor to make it possible for small fishing villages to continue.

Whether the product market or the labor market, what happens to the equilibrium price and quantity for each of the four possibilities: increase in demand, decrease in demand, increase in supply, and decrease in supply.

29. Predict how each of the following events will raise or lower the equilibrium wage and quantity of oil workers in Texas. In each case, sketch a demand and supply diagram to illustrate your answer.

a. The price of oil rises.

b. New oil-drilling equipment is invented that is cheap and requires few workers to run.

c. Several major companies that do not drill oil open factories in Texas, offering many well-paid jobs outside the oil industry.

d. Government imposes costly new regulations to make oil drilling a safer job.
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