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Chapter 4: Q5 (page 103)

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

Short Answer

Expert verified

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

Step by step solution

01

Labor Supply Concept 

Funds are supplied in financial market, where the primary factor effecting funds supplied is price of those funds ie interest rate.

Funds' supply is directly related to interest rate, higher interest rate more quantity of funds supplied & vice versa. So, the supply curve in financial market is upward sloping.

02

Detailed Explanation 

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

Change in any factor other than interest rate (for eg - market expectations) cause increase or decrease in 'supply' of funds, which lead to shift of the supply curve.

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Most popular questions from this chapter

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

Whether the product market or the labor market, what happens to the equilibrium price and quantity for each of the four possibilities: increase in demand, decrease in demand, increase in supply, and decrease in

supply.

Would usury laws help or hinder resolution of a shortage in financial markets?

A price ceiling will have the largest effect:

a. substantially below the equilibrium price

b. slightly below the equilibrium price

c. substantially above the equilibrium price

d. slightly above the equilibrium price

Suppose that a 5% increase in the minimum wage causes a 5% reduction in employment. How would this affect employers and how would it affect workers? In

your opinion, would this be a good policy?
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