How do government subsidies help an industry?

July 8, 2024 No Comments

A: Government subsidies help an industry by paying for part of the cost of the production of a good or service by offering tax credits or reimbursements or by paying for part of the cost a consumer would pay to purchase a good or service.

How do I differentiate between micro and macro economics?

July 8, 2024 No Comments

A: Microeconomics is the field of economics that looks at the economic behaviours of individuals, households and companies. Macroeconomics takes a wider view and looks at the economies on a much larger scale – regional, national, continental or even global. Microeconomics and macroeconomics are both

How do interest rates coordinate savings and investment in the economy?

July 8, 2024 No Comments

A: In modern economies, some individuals earn more money than they need to spend on present goods. There are other individuals who have a desire for more money than they can presently access. A natural market arises between those who have a surplus of present

How do investment banks help the economy?

July 8, 2024 No Comments

A: There are two broadly recognized functions of investment banks: capital market intermediation and trading. These are distinct and separate from the functions typically associated with commercial banks, which accept deposits and make loans. Investment banks are critical agents of capital formation and price setting.

How do investors lose money when the stock market crashes?

July 8, 2024 No Comments

A: Over the last 100 years, there have been several large stock market crashes that have plagued the American financial system. For example, during the Great Depression, stock prices dropped to 10% of their previous highs and during the crash of 1987, the market fell more

How do leverage ratios help to regulate how much banks lend or invest?

July 8, 2024 No Comments

A: Banks are among the most leveraged institutions in the United States; the combination of fractional-reserve banking and Federal Deposit Insurance Corporation, or FDIC, protection has produced a banking environment with limited lending risks. To compensate for this, three separate regulatory bodies, the FDIC, the

How do modern companies assess business risk?

July 8, 2024 No Comments

A: Before a business can assess or mitigate business risk, it must first identify probable or likely risks to its bottom line. There is no surefire method for identification or assessment, but firms rely on reasonable approximations based on past experience. Risk processes naturally evolve

How do modern corporations deal with agency problems?

July 8, 2024 No Comments

A: Agency problems—also known as principal-agent problems or asymmetric information-driven conflicts of interest—are inherent in static corporate structures. This conflict arises when separate parties in a business relationship, such as a corporation’s managers and shareholders, or principals and agents, have disparate interests. Principals hire agents

How do NGOs get funding?

July 8, 2024 No Comments

A: A non-governmental organization (NGO) is a non-profit, citizen-based group that functions independently of government. NGOs are organized on local, national and international levels to serve specific social or political purposes. As non-profit organizations, NGOs rely on a variety of sources for funding projects, operations,

How do property rights affect externalities and market failure?

July 8, 2024 No Comments

A: Externalities, or external economies, are important subjects in economics, especially when negative externalities may adversely affect traditional Pareto-optimal outcomes. A system that protects private property rights is often the most efficient at correctly distributing costs and benefits as long as there is a visible

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