What is meant by the problem of time consistency in the conduct of financial system policy?
What will be an ideal response?
In good times, governments and central banks typically promise not to bail out financial behemoths and other intermediaries, hoping to limit their risk-taking and thus prevent a crisis. But these intermediaries know that, in bad times, policymakers will have an overwhelming incentive to bail them out to limit a crisis. If these policymakers also have the tools to implement a bailout, their good-times promises will lack credibility. When it is not feasible to make a credible commitment, policy cannot be time consistent.
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The self-correcting tendency of the economy means that falling inflation eventually eliminates:
A. exogenous spending. B. recessionary gaps. C. expansionary gaps. D. unemployment.
The (false) idea that an industry should be protected because of learning-by-doing until it is large enough to compete successfully in world markets is the ________ argument for protection
A) cheap foreign labor B) infant industry C) dumping D) comparative advantage
What is the marginal product of labor and what is the average product of labor
What will be an ideal response?
People have less incentive to invest the more concerned they are that their investment will not be
a. appropriated by government b. stolen by thieves c. protected from high tax rates d. destroyed by civil unrest e. blown up by terrorists