6. Answer all of the following: (a) As a first-year student, you need to borrow £40,000 in order to finance your university education. You intend to repay this loan over time after you graduate. Explain why seeking out an individual saver to borrow money from could be problematic. Then identify which service a bank provides to the economy that eliminates this problem. (b) Borrowing from the central bank or other banks is a short-term solution for a bank when it is illiquid. What do you think would be a more long-term solution if a bank is persistently illiquid? (c) Why is the short-term interest rate equal to the base rate?

6. Answer all of the following: (a) As a first-year student, you need to borrow £40,000 in order to finance your university education. You intend to repay this loan over time after you graduate. Explain why seeking out an individual saver to borrow money from could be problematic. Then identify which service a bank provides to the economy that eliminates this problem. (b) Borrowing from the central bank or other banks is a short-term solution for a bank when it is illiquid. What do you think would be a more long-term solution if a bank is persistently illiquid? (c) Why is the short-term interest rate equal to the base rate?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter16: Information, Risk, And Insurance

Section: Chapter Questions

Problem 8RQ: What are some ways that someone looking for a loan might reassure a bank that is faced with...

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