Event risk is the possibility that
A. the overall price level will rise faster than expected, so that the lender is repaid in dollars that are worth less than the lender expected.
B. a borrower will face some circumstance that will prevent the borrower from paying the loan back.
C. a major catastrophic occurrence, such as a hurricane, flood, or terrorist attack, will lower the return on the investment.
D. the lender will go bankrupt before the loan is fully repaid.
Answer: C
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In terms of insurance, which of the following statements is explained by adverse selection?
A. A person with riskier characteristics tends to be more likely to buy insurance. B. A person who is more risk-averse tends to be more likely to buy insurance. C. Insurance companies charge risk-averse customers a higher premium, since they need more peace of mind. D. None of these statements is true.
Private goods are excludable and nonrival in consumption
a. True b. False
The Incentive Principle is an example of:
A. a normative economic principle. B. a positive economic principle. C. an economic decision-making pitfall. D. over-estimating the benefits of an action.
If planned aggregate spending in an economy can be written as PAE = 15,000 + 0.6Y ? 20,000r, and potential output equals 35,000, what real interest rate must the Federal Reserve set to bring the economy to full employment?
A. 4 percent B. 2 percent C. 3 percent D. 5 percent