Explain how Federal Deposit Insurance (FDIC) could potentially create a moral hazard for the managers of deposit institutions.
What will be an ideal response?
FDIC insurance pays off depositors (up to a limit) if a bank or other insured depository institution fails. As a result, the managers or owners of the bank have the incentive to attract funds (offer higher interest rates to savers), and then earn as high a return as possible (take greater risk). If the high returns appear, all they have to return to the depositors is the principal and interest; everything else is theirs. This is one reason why many financial intermediaries are highly regulated and restricted in their use of funds.
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The optimal bidding strategy for a second-price auction is
a. To bid your true value b. To shade your bid well below your true value c. To shade your bid just a little below your true value d. To size up your competition to determine how much to shade your bid
Which of the following is the best indication that stagflation is occurring?
A. Rising unemployment rate and rising inflation rate. B. Falling unemployment rate and rising inflation rate. C. Rising unemployment rate and falling inflation rate. D. Falling unemployment rate and falling inflation rate.
A carbon tax on fossil fuels is likely to cause the price of goods produced by firms that use fossil fuels to:
A. decrease. B. not change. C. increase. D. change, but in a way that cannot be determined.
Trade in services such as information technology
A) is like other trade; it creates winners and losers, but the gains for national economies likely outweigh the costs. B) creates gains for India's economy, but national welfare losses for the countries that import these services. C) make it highly likely that information technology jobs will ultimately disappear in the industrialized countries. D) is not perceived as threatening by industrialized countries so is unlikely to lead to any protectionist sentiment or pressures in the way the manufacturing does.