When economists assume that people act rationally, it means they:
a. make decisions based on complete and accurate information
b. make decisions that will not be regretted later on.
c. make decisions based on what they believe is best for themselves using available information.
d. make decisions based solely on what is best for society.
c
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Give a specific example that shows clearly how the System of National Accounts endorsed by the United Nations fails to properly capture activity that harms the environment. Now, suggest a way to quantitatively correct the flaw in the particular case that you describe in part (a).
What will be an ideal response?
The Keynesian theory of money demand predicts that people will increase their money holdings if they believe that
A) interest rates are about to fall. B) bond prices are about to rise. C) expected inflation is about to fall. D) bond prices are about to fall.
Insurance companies work toward reducing moral hazard in health insurance by requiring clients to:
a. sign a contract stating they will not engage in risky behavior. b. return any unspent moneys at the end of the year. c. be placed in an adverse selection group if they have more than one claim in a 12-month period. d. reach a deductible threshold before insurance will pay anything.
Suppose that a nation has adopted a fixed exchange rate with another country, and has a persistent trade deficit. What is most likely to happen?
a. a gradual increase in the value of its currency b. a gradual decrease in the value of its currency c. a "run" on its currency and a sudden appreciation d. a "run" on its currency and a sudden devaluation