If governments promise to bail out the financial system in the event of a crisis, this creates a moral hazard problem. Describe this problem
What will be an ideal response?
If the costs of failure are removed, the incentive for decision makers inside financial institutions to make responsible decisions and to take normal precautions are also removed. Governments can't afford to let their financial systems go under but can't let their financial sectors expect bailouts.
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Gamble A results in $10 with probability 0.4 and $30 with probability 0.6. Gamble B results in $20 with probability 1. If an individual prefers Gamble A to Gamble B, the independence axiom implies that he prefers Gamble C that gives $0 with probability 0.5, $10 with probability 0.2 and $30 with probability 0.3 to Gamble D that results in $20 with probability 0.5 and $0 with probability 0.5.
Answer the following statement true (T) or false (F)
What are the differences between common stock and preferred stock?
What will be an ideal response?
The marginal revenue of a price taker is:
a. equal to price. b. less than price. c. more than price. d. unrelated to price.
The U.S. Federal expenditures for "pensions and income security" is dominated by
A. unemployment benefits. B. housing subsidies. C. Social Security payments. D. food stamps.