Moral hazard may arise in lending when small firms borrow funds from banks for one project (e.g., buy new machinery for a factory) and actually use the funds in other ways (e.g., buy the manager a new corporate jet)
What is the source of the asymmetric information problem in this case? A) The bank has more information about the true cost of the corporate jet than the firm.
B) The bank has more information about the opportunity cost of the loaned funds.
C) The firm has more information about the actual use of the funds than the bank.
D) The firm has more information about the interest rate on the loan than the bank.
C
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The benefit of a one-unit increase in an activity
A) decreases as you do more of it. B) is called rational-choice benefit. C) is called marginal cost. D) is always greater than the opportunity cost of that activity. E) is measured by what you must give u
The biggest disadvantage of a fixed exchange rate is the
A) increased probability of high inflation. B) tradeoff between supporting the exchange rate and adjusting the trade balance. C) tradeoff between supporting the exchange rate and maintaining economic growth. D) increased probability of a trade deficit. E) tradeoff between supporting the exchange rate and maintaining a balanced budget.
If a firm faces a price of $12 regardless of how many units it produces and the marginal cost is constant at $10 regardless of how many units it produces, then theoretically, the firm should never stop producing
Indicate whether the statement is true or false
Dividends are
A. The only motive for purchasing stock. B. Profits used for investment in new plants and equipment. C. An increase in the market value of an asset. D. The amount of corporate profit paid out for each share of stock.