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Author Question: The income effect explains why there is an inverse relationship between the price of a product and ... (Read 52 times)

burchfield96

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on: Jun 29, 2018
The income effect explains why there is an inverse relationship between the price of a product and the quantity of the product demanded.
 
  Indicate whether the statement is true or false

Question 2

How do depository institutions balance risk and return?
 
  What will be an ideal response?


carlsona147

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Reply #1 on: Jun 29, 2018
Answer to Question 1

TRUE

Answer to Question 2

Banks earn a higher return by using the funds they acquire from their deposits to buy higher-yielding, riskier assets such as loans. But these assets are risky. If the loans fail, then the bank might not have sufficient funds to repay their depositors. If the bank undertakes too much risk, then its depositors might rush to withdraw their deposits, which would cause the bank to fail. But if the bank forgoes all risky assets its profit will be much lower. So the bank must balance its search for higher return against the risk earning the return entails.


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