Written Assignment Week 6 The Four Investment Scenarios in Capital Markets Prepare a 2-3 page paper using APA format discussing problem 2 in the “Problems to Ponder” at the end of chapter 11. Which of these four scenarios on page 264 are most important today? Your answer may include more than one scenario. Your paper should reflect scholarly writing and current APA standards. Please include citations to support your ideas. Four scenarios for examination: (1). Outward shift in the demands for capital occurs in an economic boom when increased construction of plants, buildings, and other capital intensive business activities require huge outlays of investment. In this situation, interest rates tend to rise along with capital invested. (2). Decreased shift in the demand for capital occurs in an economic downturn or recession. The economy stops growing, the real estate mark collapses, and new building permits drop. The result? Lower interest rates and less capital invested. (3). Outward shift in supply of capital occurs in situations where new sources of capital enter the market, either from domestic savings (people desire to save more) or foreign investment sources. The greater supply of capital requires banks and other intermediaries to reduce interest rates and encourage more borrowing. Net result: lower interest rates and more capital invested. (4). Inward shift in the supply of capital occurs when people decide to cut back on their savings or foreigners withdraw investment capital. With fewer loanable funds available, banks and other financial institutions must ration the funds, causing interest rates to climb and few investment projects. Net result: higher interest rates, less capital invested. Problem #2: Problems to Ponder Which scenario is most conductive toward economic growth? Which scenario is the most normal historically? * Discussion #2: Risk Taking Problem 6 in the “Problems to Ponder” section at the end of chapter 12 is about risk taking. Based on your experience, respond to this problem. Discuss. Problem #6: Problems to Ponder One of the reasons Joseph Schumpeter argued that capital was doomed was because he predicted that big corporations would naturally shift away from risk taking entrepreneurship in favor of low risk managerial strategies. Has this happened? Have major corporations been unwilling to adapt to the times and meet completion head on? Are corporate executives better described as risk averse manages than entrepreneurs willing to take a chance? * Discussion #2: Product Improvement Problem 4 in the “Problems to Ponder” section at the end of chapter 23 is about product improvement or the increase in technology, broadly defined, over time. Provide a short list and discuss the specific items in the problem. Problem #4: Problems to Ponder Make a list of products and services which are least satisfactory and have shown the least improvement over time. How many of these are produced by government? Do you agree or disagree with the statement by Milton Friedman: “postal service, elementary and secondary schooling, railroad passenger transport would surely be high on the list. Ask yourself which products are most satisfactory and have improved most. Household appliances, television, and radio sets, hi-fi equipment, computers and we would add supermarkets and shopping centers would surely come high on that list.” (Free to Choose)
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