UCF ECO CHAPTER 14 NOTES STUDY
GUIDE
Financial market - ANS a market in which people trade future claims on funds or goods
information asymmetry - ANS a condition in which one participant in a transaction knows
more than another participant
adverse selection - ANS a state that occurs when buyers and sellers have different
information about the quality of a good or the riskiness of a situation, and this asymmetric
information results in failure to complete transactions that would have been possible if both
sides had the same information
moral hazard - ANS the tendency for people to behave in a riskier way or to renege on
contracts when they do not face the full consequences of their actions
2 classic forms of information asymmetry - ANS adverse selection and moral hazard
credit bureaus - ANS collect information on your financial history to limit moral hazard and
adverse selection
1st function of a bank - ANS act as an intermediary for borrowers and savers.
2nd function of a bank - ANS providing liquidity
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, 3rd function of a bank - ANS diversify risk (Ex, don't have to worry about being screwed if a
person can't pay back the loan on time)
market for loanable funds - ANS a market in which savers supply funds to those who want to
borrow
savings - ANS The portion of income that is not immediately spent on the consumption of
goods and services
investment (I) - ANS spending on productive inputs, such as factories, machinery, and
inventories
Putting money into a 401 (k) account is considered by an economist as - ANS savings
purchasing a stock is considered by an economist as - ANS savings
The supply of loanable funds comes from - ANS savings
The demand for loanable funds comes from - ANS investment
In the market for loanable funds, saving is like - ANS selling the right to use your money for a
time
In the market for loanable funds, borrowing is like - ANS buying the right to use someone
else's money
Known as the "Price of money." - ANS Intrest rate
The quantity of savings that people are willing to supply depends on: - ANS The price they
receive
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GUIDE
Financial market - ANS a market in which people trade future claims on funds or goods
information asymmetry - ANS a condition in which one participant in a transaction knows
more than another participant
adverse selection - ANS a state that occurs when buyers and sellers have different
information about the quality of a good or the riskiness of a situation, and this asymmetric
information results in failure to complete transactions that would have been possible if both
sides had the same information
moral hazard - ANS the tendency for people to behave in a riskier way or to renege on
contracts when they do not face the full consequences of their actions
2 classic forms of information asymmetry - ANS adverse selection and moral hazard
credit bureaus - ANS collect information on your financial history to limit moral hazard and
adverse selection
1st function of a bank - ANS act as an intermediary for borrowers and savers.
2nd function of a bank - ANS providing liquidity
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, 3rd function of a bank - ANS diversify risk (Ex, don't have to worry about being screwed if a
person can't pay back the loan on time)
market for loanable funds - ANS a market in which savers supply funds to those who want to
borrow
savings - ANS The portion of income that is not immediately spent on the consumption of
goods and services
investment (I) - ANS spending on productive inputs, such as factories, machinery, and
inventories
Putting money into a 401 (k) account is considered by an economist as - ANS savings
purchasing a stock is considered by an economist as - ANS savings
The supply of loanable funds comes from - ANS savings
The demand for loanable funds comes from - ANS investment
In the market for loanable funds, saving is like - ANS selling the right to use your money for a
time
In the market for loanable funds, borrowing is like - ANS buying the right to use someone
else's money
Known as the "Price of money." - ANS Intrest rate
The quantity of savings that people are willing to supply depends on: - ANS The price they
receive
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
