Why might the supply of loans increase as interest rates fall?
What will be an ideal response?
There are a number of reasons for this. First, at lower interest rates the borrower's loan payments will be lower, and the percentage that loan payments make up of a borrower's income will be reduced, making the borrower a better risk. Also, the lower interest rate should increase the borrower's net worth by increasing asset values and reducing interest expense, thereby increasing profits. Finally, with a higher net worth, the moral hazard problem is reduced. The borrower is less likely to take on greater risk if he/she has a higher net worth in the firm since he/she has more to lose.
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Growth in the United States from 1800 to 1900 can be characterized as
A) positive and increasing. B) negative. C) positive and flat. D) positive and decreasing.
The fact that a perfectly competitive firm has a perfectly elastic demand curve means
A) there is no limit to the firm's profits. B) there is no limit to the firm's revenues. C) that it can sell all it wants at any price. D) None of the above