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16 Sep 2018

What would happen to the standard of living in the United States if people lost faith in our financial markets? Why?

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Nelly Stracke
Nelly StrackeLv2
17 Sep 2018

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In what ways do financial intermediaries improve the standard of living in an economy? What would happen to the standard of living in the United States if people lost faith in the safety of its financial institutions? Why?

What would happen to a country’s standard of living if people lost faith in the safety of the financial institutions?  Explain.

1.) What does a negative interest rate mean? Why would a government intentionally have a negative interest rate (potential economic benefits)? If the interest rate was negative why would savers (people or businesses) still put their money in banks or invest in government bonds? If the negative interest rate continued to decrease or lasted for a long period of time what would happen? How would a high interest rate impact our economy (consumer spending, loan availability, etc)?

2.) What is the primary difference between direct and indirect finance? Why are banks or private loans a more common source of external financing than the stock market? Discuss how information asymmetry is involved in this decision. Think about the market for lemons and the car example we discussed in class. What problems do information asymmetry cause in the financial markets?

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