A key aspect of the principal-agent problem is that
A) the principal cannot perfectly monitor the agent's actions.
B) the principal can perfectly monitor the agent's actions.
C) the output level does not depend on the agent's actions.
D) the principal is always risk averse.
A
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Collateral requirements lessen the consequences of ________ because the collateral reduces the lender's losses in the case of a loan default and it reduces ________ because the borrower has more to lose from a default
A) adverse selection; moral hazard B) moral hazard; adverse selection C) adverse selection; diversification D) diversification; moral hazard
Refer to Figure 10.7. A movement from point A to point B could be caused by
A) a negative demand shock. B) a decrease in the term premium investors expect in the future. C) an increase in the default-risk premium. D) an increase in the expected rate of inflation.
Suppose the cost to erect a tornado siren in a small town is $15,000 . In addition, suppose the value of a human life is $10 million. By what percentage would the siren need to reduce the risk of a fatality for the benefits of the siren to exceed the costs of the siren?
a. By at least 0.015 percentage points. b. By at least 0.15 percentage points. c. By at least 1.5 percentage points. d. By at least 5 percentage points.
Over time, regulatory machinery may shift toward the special interests of producers, who, in effect, "capture" the regulating agency
a. True b. False