A debt contract is incentive compatible
A) if the borrower has the incentive to behave in the way that the lender expects and desires, since doing otherwise jeopardizes the borrower's net worth in the business.
B) if the borrower's net worth is sufficiently low so that the lender's risk of moral hazard is significantly reduced.
C) if the debt contract is treated like an equity.
D) if the lender has the incentive to behave in the way that the borrower expects and desires.
A
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Economists believe the Cost-Benefit Principle is:
A. a simple but useful model of how people should make choices. B. an interesting intellectual exercise with little applicability to the real world. C. of little use to those who wish to learn how to make better decisions. D. a comprehensive description all the factors that influence people's choices.
Imagine that Odyssey National is a brand new bank, and that its required reserve ratio is 10 percent. If it accepts a $1,000 deposit, then its excess reserve balance will be:
a. $0. b. $90. c. $100. d. $900. e. $910.
Which retail operation would have the lowest costs per book sold?
a. a small independent bookstore b. a large retail bookstore chain c. an Internet seller of books d. All would have the same costs.
?
In Exhibit 3-7, if price happened to currently be $25 in this market, a _______ would result, causing a _______ in price.
A. shortage; increase B. shortage; decrease C. surplus; increase D. surplus; decrease