. Would each of the following events increase or decrease the volume of bank loans? Explain....

. Would each of the following events increase or decrease the volume of bank loans? Explain. a. New regulations make it easier for shareholders to replace company directors. b. A new law makes it a felony to default on a bank loan. c. All the economy’s small firms are bought by large firms. d. Mutual funds reduce their minimum balances for shareholders.

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Expert Solution

Bank loans are the loans taken from banks on a particular rate of interest for a particular period of time for using the money now and paying it back with interest at some point of time agreed by both parties. There are events which increase or decrease the volume of bank loans.

(a) If a new regulation make it easier for the shareholders to replace company directors, than the shareholders will have more faith in the company and hence they can invest more money in the company. So if they want to invest more money or buy more share they will need more money which they can get from bank. So, this will increase the volume of bank loans.

(b)If a new law makes it a felony to default on a bank loan, the persons taking frequent loans from bank will fear that if they can't pay back the loan due to any reason they will have to face very bad consequences. So this will discourage the people to take bank loans, and hence the volume of bank loans will decrease.

(c)If all the economy's small firms are brought by the large firms than the volume of bank loans will decrease, this is because smaller firms take more loans from bank because of lack of capital but as compared to small firms larger forms have a larger capital base and hence they need less bank loans.

(d) If Mutual funds reduce their minimum balances for shareholders, than it will be possible for people to invest even small amounts in mutual funds and hence they will need less Monet as bank loans. So this will decrease the overall volume of the bank loans.

Rahul Sunny answered 1 year ago

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