Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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Chapter 27, Problem 6SCQ

Imagine that you are in the position of buying loans in the secondary market (that is, buying the right to collect the payments on loans) for a bank or other financial services company. Explain why you would be willing to pay more or less for a given loan If:

  1. The borrower has been late on a number of loan payments
  2. Interest rates In the economy as a whole have risen since the bank made the loan
  3. The borrower Is a firm that has just declared a high level of profits
  4. Interest rates in the economy as a whole have fallen since the bank made the loan

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Predict how each of the following economic changes will affect the equilibrium price and quantity in the financial market for home loans. Which curve will shift: supply or demand? In which direction will the curve shift: right or left? (It may help to use a demand and supply diagram to conduct your analysis.)  a. The number of people at the most common ages for home-buying decreases.    b. Rents rise extremely rapidly.  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.The overall level of saving in the economy diminishes.  e. The federal government changes its bank regulations in a way that makes it cheaper and easier for banks to make home loans.
Suppose a new customer adds $100 to his account at North Central National Bank, which the owners of the bank then use to make $100 worth of new loans. This would increase the loans account and    the    account.
Many countries have policies that limit how much interest a moneylender can charge on a loan. Do you think these limits are a good idea? Who benefits from the laws and who loses? What are likely to be the long-term effects of such laws? Tips:  For part 2, you may think about how a low interest rate would affect the poor and those who owe huge debts. For part 3, you may think about how it would affect the profitability of the banking sector and the supply of lending (will lenders be encouraged to lend more?), and what implications it may have for "credit rationing" (being credit constrained).

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Principles of Economics 2e

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