Explain the “too big to fail” doctrine.
What will be an ideal response?
During a financial crisis, some financial institutions may be in danger of failing, The failure of a single institution is a negative event but might not be too damaging to the economy as a whole. However, a very large bank or other financial institution may be linked to other financial institutions to which funds are collected and disbursed. If the larger bank fails initially, there could be a ripple effect in which additional small and large financial institutions also fail. This type of systemic risk makes these large institutions “too big to fail.” As such, the government is more likely to regulate them very strictly, and the government is also more likely to bail out such institutions in order to prevent a more massive financial crisis.
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Refer to Table 17.1. The employment rate for this simple economy is
A) 40%. B) 50%. C) 75%. D) 80%.
Greater labor force participation for households at higher real wage rate is one reason that
A) the demand for labor curve is upward sloping. B) the demand for labor curve is downward sloping. C) the supply of labor curve is upward sloping. D) the supply of labor curve is downward sloping.
Patents encourage inventions because without a patent
A) other firms could enter the inventor's market by producing the same product. B) nobody would demand the inventor's product. C) the inventor would receive no tax breaks. D) all markets would be public franchises.
Private costs
A) are borne by producers of a good while social costs are borne by government. B) are borne by consumers of a good while social costs are borne by government. C) are borne by producers of a good while social costs are borne by society at large. D) are borne by producers of a good while social costs are borne by those who cannot afford to purchase the good.