Explain why the ratio of assets to capital increased dramatically for commercial banks from the 1960s to the present.
What will be an ideal response?
The answer to this question is simply deposit insurance. Without deposit insurance a bank would have to make sure its assets were highly liquid and that it maintained adequate capital to withstand either the shock of assets losing value or a run on the bank. With deposit insurance, the bank manager knows that the insurance fund will protect most depositors and so feels comfortable assuming more risk. While the additional return from the greater risk will belong to the bank's owners, the potential loss from the greater risk will be borne primarily by the insurance fund. This is a classic moral hazard problem.
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To have an effective price support program, the government must
i. isolate the domestic market from the world market. ii. pay the farmers a subsidy. iii. introduce a price floor. A) i only B) ii only C) iii only D) ii and iii E) i, ii, and iii
Normative statements are statements about
A) prices. B) quantities. C) what is. D) what ought to be.
A normative statement: a. describes the self-interested behavior of individuals
b. describes the world as it is. c. describes how the world should be. d. describes how sunk costs do not affect current decisions.
Refer to the accompanying table. Corey's opportunity cost of making of a pizza is delivering: Pizzas Made Per HourPizzas Delivered Per HourCorey126Pat1015
A. 1/2 of a pizza. B. 2 pizzas. C. 3/2 of a pizza. D. 2/3 of a pizza.