Why do higher interest rates increase adverse selection problems in the loan market?
A) Higher interest rates reduce the gains from economies of scale.
B) As interest rates rise, the creditworthiness of the average loan applicant declines.
C) Higher interest rates reduce information problems in the loan market.
D) At higher interest rates fewer investment projects are profitable.
B
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A substantial appreciation of the U.S. dollar will likely result in, all else equal,
A) lower demand for U.S. products and layoffs of U.S. workers. B) increased demand for U.S. products and increased employment of U.S. workers. C) lower foreign currency prices of U.S. products in foreign countries. D) higher U.S. dollar prices of foreign products in the United States.
A restaurant owner hires a waiter to serve food to customers and clear the tables. The owner wants the waiter to be prompt in bringing out the food and clearing the table once the guests are finished with their meal. The waiter is paid a salary and cannot accept tips. The waiter would prefer to check their Facebook account and take their time waiting the tables. If the waiter does spend
considerable time checking their Facebook while the owner is not at the restaurant, which of the following is true? A) This is an example of the lemons problem and the waiter is the agent and the owner is the principal. B) This is an example of the principal-agent problem and the waiter is the agent and the owner is the principal. C) This is an example of adverse selection and the waiter is the agent and the owner is the principal. D) This is an example of the principal-agent problem and the waiter is the principal and the owner is the agent.
For those who favor an active approach, public policy changes are necessary to cure a recessionary gap because: a. the short-run aggregate supply curve will otherwise shift quickly to the right
b. prices and wages are flexible downward but not upward. c. the required decrease in output can be achieved only by shifting the aggregate demand curve. d. real wages must fall in order to increase aggregate supply in the economy. e. falling money wages will cause the AD curve to shift leftward unless policy counters this movement.
Nobel Prize winning economist Joseph Stiglitz has argued that since its inception, the _______ has changed its philosophy from an organization that believed markets sometimes behaved badly to an organization that virtually worships free markets.
Fill in the blank(s) with the appropriate word(s).