A borrower who takes out a loan usually has better information about the potential returns and risk of the investment projects he plans to undertake than does the lender. This inequality of information is called
A) moral hazard.
B) asymmetric information.
C) noncollateralized risk.
D) adverse selection.
B
You might also like to view...
If the Fed tries to lower the unemployment rate so it is lower than the natural unemployment rate, in the long run the SRPC ________ and the LRPC ________
A) shifts downward; shifts leftward B) does not change; shifts rightward C) shifts upward; does not change D) shifts downward; does not change E) does not change; does not change
Which of the following is not among the functions of contract?
a. to provide incentives for efficient reliance b. to reduce transaction costs c. to discourage the development of asymmetric information d. to provide risk allocation mechanisms
Alex was willing to pay $50 for the new World Cup soccer ball. When he received it as a gift, he was willing to sell it, but for no less than $80. According to behavioral economists:
A. Alex's behavior is consistent with the endowment effect. B. Alex's behavior is irrational because of inconsistent anchoring. C. Alex should sell the ball if he's offered any amount over $50. D. Alex's behavior is irrational because his frame has changed.
If Zach's saving function is of the form [S = -300 + 0.2Y], his consumption equals his income at an income level of
A. 300. B. 600. C. 1,040. D. 1,500.