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Chapter 8: An Economic Analysis of...
Synopsis
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Lending is risky. Borrowers with ill intentions may choose to skip town and fail to leave a forwarding address, and even those with honest intentions may undertake actions that increase the probability that they will be unable to meet their payment obligations. Given these hazards, individuals may be understandably reluctant to lend. Although lending is risky for the lender, the channeling of funds from individuals with savings to others with productive investment opportunities is essential for economic growth. Channeling funds from savers to investors is beneficial to the economy and the parties to the exchange, but only if investors have incentives to honor their promises and pay back the borrowed funds.
For a more detailed chapter review with additional exercises and self-tests, order the Student Study Guide, ISBN 0-321-19416-0.
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