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Homework answers / question archive / If Ahmad can buy a car today for $ 5000, the car will worth $ 10,000 in extra income to Ahmad next year because he will use the car to do his business

If Ahmad can buy a car today for $ 5000, the car will worth $ 10,000 in extra income to Ahmad next year because he will use the car to do his business

Economics

If Ahmad can buy a car today for $ 5000, the car will worth $ 10,000 in extra income to Ahmad next year because he will use the car to do his business. Should Ahmad borrow the $ 5000 for the loan shark at 90% interest if no one else could lend this money to Ahmad? Will Ahmad be better or worse off as the result of borrowing the money from the loan shark? Why do loan shark care less about moral hazard when lending money compared to commercial banks? Can you make a case for legalizing loan shark? Note: Your answers should be detailed with proper references. 2. Some Economists argue that one of the reasons that economies in developing countries grow so slowly is because they do not have well-developed financial markets. Does this argument make sense? Discuss. Note: Your answers should be detailed with proper references.

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Answer:1 1

Ahmad will be able to earn extra $10000 if he uys the car tody worth $ 5000 .

The ahmad should borrow money from the loan shark if no one else provide him money to buy the car at 90 % interest rate .

He will earn =10000 $

He will Pay interest = $5000*900/100

=4500 $

Hence he will get net profit 10000-4500-5000=5500 without inclusion of price of car .He is better off

Loan shark do care less moral compare to other banks as it earns high on the lending usually 90 % interest rate which is too much high compared to the commercial banks rate .

Answer:2

Economists arguements that slow growth of developing countries economy reason is that lack of well developed financial market in the such undeveloped economy . The well developed financial market is very essential for the growth of any economy the arguements of the economists is correct . The undeveloped economy lack other things here like they have less infrastructure, skills , technology lacking , money and mainly well developed financial market lacking they have .Financial market strong of any country is very much necessary for the growth as it ensures the money transfer from those have extra savings to those needy to fuse in business and which causes employment high ,use of resources of economy and develop economy of country .