Mary Jones is the president of a local bank. She knows that half of the loan applicants in town she would classify as high risk and the other half as low risk. She observes that the other banks in town charge two different interest rates, a lower rate for low risk borrowers and the higher rate for high risk borrowers. She decides that to have an advantage over the other banks she will offer an average rate to everyone. The likely result will be:
A. Mary's bank will experience adverse selection and have a disproportionate number of high risk borrowers.
B. Mary's bank will experience adverse selection and have a disproportionate number of low risk borrowers.
C. Mary's bank will be highly successful as this will provide the bank with a large competitive advantage.
D. Mary's bank is likely to see a dramatic increase in both types of borrowers.
Answer: A
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Which of the following causes the unemployment rate to understate the true extent of joblessness?
A) Many full time workers really want to be part time workers. B) A drug dealer reports herself as unemployed. C) Persons who collect unemployment benefits report themselves to be searching for a job. D) Discouraged workers are counted as unemployed. E) Discouraged workers are not counted as unemployed.
What would happen if you increased the price to $3 and increased the quantity supplied to 4,000 pounds?
a. You would maintain the same shortage.
b. You would lessen the shortage.
c. You would reach equilibrium.
d. You would create a surplus.
Which of the following is an automatic stabilizer?
A. Unemployment compensation B. Property taxes C. Military expenditures D. Social Security benefits
Time inconsistency refers to a situation where:
A. we typically choose the same thing, regardless of when the decision is being made. B. we change our minds about what we want simply because of the timing of the decision. C. we change our minds about what we want in response to gaining complete information. D. None of these statements is true.