![]() Trading in the market for loanable funds determines the equilibrium interest rate. Market for loanable funds Occurs when suppliers of loanable funds (savers) trade with demanders of loanable funds (borrowers). Higher investment increases the standard of living and the rate of economic growth.The ability to borrow greatly increases the ability to invest.Businesses borrow to finance large projects.The demand to borrow Often the people with the best business ideas are not the people with the most savings. By borrowing, saving, and dissaving, workers can smooth their consumption over their lifetime.Borrowing moves some sacrifices into future periods when students have a job.Many young people borrow to invest in their education.The demand to borrow One reason people borrow is to smooth consumption. Patience is one of the major factors in determining the supply of savings, along with smoothing consumption, interest rates, and marketing and psychological factors. Which of the following is a major factor in determining the supply of savings? Simple psychological changes, combined with effective marketing and promotion, can change how much people save.The default also mattered for how much was saved.The retirement savings plan participation rate was 25% higher in businesses that used automatic enrollment rather than opt-in feature.Time preference the desire to have goods and services sooner rather than later (all else being equal) Marketing and psychological factors Individuals save more if saving is presented as the natural or default alternative. Criminals, addicts, alcoholics, and smokers all tend to discount the future more heavily.Impatience is reflected in any economic situation in which people must compare costs and benefits over time.The more impatient a person, the more likely that person's savings rate will be low.Individuals are impatient -Most individuals prefer to consume now rather than later. Saving also builds a cushion for unemployment or unexpected health problems.You can smooth your consumption by saving during the working years and dissaving during the retirement years.After retirement, consumption drops precipitously.Saving income that is not spent on consumption goods investment the purchase of new capital goods 4 major factors that determine the supply of savings smoothing consumption, impatience, marketing and psychological factors, and interest rates smoothing consumption -If you consume what you earn every year, consumption is high during your working years. Connecting savers and borrowers increases gains from trade and smooths economic growth.The more capital an economy can invest, the greater is GDP per capita.the shadow banking system refers to the unregulated non-bank financial firms engaged in borrowing from investors and lending to households and firms Introduction -Savings are necessary for capital accumulation. ![]() However, the risk level of these securitized assets was often much higher than the purchaser thought. Which of the choices most accurately describes the role of securitization in contributing to the crisis? Banks bundled mortgages together and then sold them on the market as a financial asset. Increases in interest rates There were many causes that contributed to the financial crisis of 2007-2008. _ are a mechanism by which crowding out occurs. Which of the following is an example of crowding out? A firm that chooses not to borrow money to invest in new machinery, because government borrowing has contributed to high interest rates What is crowding out? A reduction in consumption and investment spending that results from government borrowing. In the context of budget deficits, what is crowding out? When government borrowing leads to higher interest rate and corresponding decrease in private investment. Jack wants to borrow money to create a cowboy-themed inflatable bounce house for kids called "Wild Wild West." However, the government is running a deficit which has increased interest rates so much that Jack can no longer afford to borrow the money. The government of Walla Walla spent $4.3 billion dollars and collected $2.2 billion dollars in tax revenue. Candex, an eyeglass frame company, decides to cut the price on all of its frames to $10, which successfully drives out all other firms from the market. As such, people begin to save more money in fear that taxes will increase in the future. The government deficit is at an all-time high in the United States. Which of the situations is an example of the crowding-out effect on investment as it pertains to macroeconomics?
0 Comments
Leave a Reply. |