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Chapter 4: Q. 4 (page 103)

In the financial market, what causes a movement along the demand curve? What causes a shift in the demand?

Short Answer

Expert verified

Change in interest rates leads to movement along the labor demand curve. Change in factors other than interest rates leads to shift of the labor demand curve.

Step by step solution

01

Step1. Given information

Funds are demanded in financial market, where the primary factor effecting funds' demand is cost or price of those funds i.e. interest rate.

Funds' demand is inversely related to interest rate, higher interest rate means lower funds demand & vice versa. So, the demand curve in financial market is downward sloping.

02

Step2. Explanation

Change in interest rate causes increase (expansion) or decrease (contraction) in 'quantity demanded' of funds, which leads to movement along the demand curve.

Change in any factor other than interest rate (for eg - expected return on investment rates or investors' preferences) cause increase or decrease in 'demand' of funds, which leads to shift of the demand curve.

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Most popular questions from this chapter

If the government imposed a federal interest rate ceiling of 20% on all loans, who would gain and who would lose?

Select the correct answer. A price floor will usually shift:

a. demand

b. supply

c. both

d. neither

Illustrate your answer with a diagram.

Why is a living wage considered a price floor? Does imposing a living wage have the same outcome as a minimum wage?

Name some factors that can cause a shift in the

demand curve in labor markets.

Identify each of the following as involving either demand or supply. Draw a circular flow diagram and label the flows A through F. (Some choices can be on both sides of the goods market.)

a. Households in the labor market

b. Firms in the goods market

c. Firms in the financial market

d. Households in the goods market

e. Firms in the labor market

f. Households in the financial market
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