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Chapter 4: Q. 5 (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

Movement along the supply curve- changes in the roi (rate of interest)

Shift of supply curve- any other change, like income, future expectations of the need of capital, etc.

Step by step solution

01

Step1. Introduction

Financial market is the interaction of demand and supply for capital. Capital is supplied by the ones who save, on which they expect a certain roi (rate of interest). The ones demanding are the ones who wish to invest, primarily in their business ventures. They too expect to pay a certain roi.

02

Step2. Explanation

Changes in the interest rate which determines the price of the capital causes movement along the supply curve in the financial market.

Shift of supply curve is caused by any change, other than the one which affects the price of the capital (i.e. primarily roi) like income, future expectations of the need of capital, etc.

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Most popular questions from this chapter

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.

Sketch all four of these possibilities on a demand and supply diagram to illustrate your answer

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

minimum wage?

Identify the most accurate statement.

A price floor will have the largest effect if it is set:

a. substantially above the equilibrium price. b. slightly above the equilibrium price.

c. slightly below the equilibrium price.

d. substantially below the equilibrium price.

Sketch all four of these possibilities on a demand and supply diagram to illustrate your answer

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
See all solutions

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