A. Everything else remaining unchanged, what is likely to happen to the credit demand curve of an economy if:
i. businesses in the economy see scope for growth and are planning to expand production in the future?
ii. households are pessimistic about future incomes?
iii. the government is planning to borrow money from financial institutions for investment in infrastructures?
b. Everything else remaining unchanged, what is likely to happen to the credit supply curve of an economy if firms tend to hold on to retained earnings instead of paying dividends?
a.
i. If businesses in the economy see scope for growth and are planning to expand production in the future, the credit demand curve of the economy is likely to shift to the right.
ii. If households are pessimistic about future incomes, they are unlikely to borrow more today as they may not be able to repay the loans in the future. This shifts the credit demand curve of the economy to the left.
iii. If the government is planning to borrow money from financial institutions to invest in infrastructures, the credit demand curve of the economy is likely to shift to the right.
b. If businesses hold on to retained earnings instead of paying dividends, they generate savings. This shifts the credit supply curve to the right.
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Which of the following is NOT a reason that people tend to deposit their funds with banks rather than lend their funds directly to other individuals?
A) asymmetric information problems B) adverse selection problems C) moral hazard problems D) liquidity problems
A rise in the price level
A) raises the buying power of money. B) decreases the prices of exports. C) lowers the buying power of money. D) increases aggregate demand. E) makes the aggregate demand curve steeper.