Chapter 4: Financial Markets

Question 1

Loanable Funds

Answer 1

financial capital

Question 2

Financial Markets

Answer 2

Collective term for all types of financial investments and loans. Includes banks, stocks, bonds, mutual funds.

Question 3

Saver

Answer 3

Collective term for any households or businesses who wants to save/invest money in financial markets

Question 4

Borrower

Answer 4

Collective term for any households or businesses that want to borrow financial capital for investments/spending

Question 5

Disposable Incomes

Answer 5

Household income, less taxes paid to government

Question 6

What is the typical credit card interest rate?

Answer 6

12-18% per year

Question 7

What is the “price” measure equivalent in the financial market?

Answer 7

Interest rate

Question 8

What occurs when the interest rate is above the equilibrium level?

Answer 8

Lenders have surplus capital and are eager to supply it.
Few people wish to borrow at high interest rates.
Interest rate is pushed down toward equilibrium.

Question 9

What occurs when the interest rate is below the equilibrium level?

Answer 9

Lenders have a shortage of capital and supply is limited.
Demand to borrow is high.
Interest rate creeps up toward equilibrium.

Question 10

How does doubt in the stability of the US financial markets affect Quantity of Financial Capital?

Answer 10

Reduces supply, as foreign investors are more reluctant to invest in a risky economy

Question 11

Usury Laws

Answer 11

Impose upper limit on interest rate lenders can charge