Over the past several years, the federal government has rescued a few financially distressed banks and other large private companies, and the key reasons for these actions is to stabilize financial markets and to prevent additional business failures
that may arise from the original problem. However, critics of these interventions argue that these actions generate a moral hazard problem. Why? A) Government oversight of rescued firms is typically based on limited information, so the outcome is economically inefficient.
B) Rescued firms will have a difficult time buying insurance in private markets, so the government will also have to insure the firm against losses from fire, theft, etc.
C) Managers have more information about the financial strength of their firm than government officials, so the rescue attempts may be unnecessary.
D) Managers may be more likely to invest in risky projects if they believe the government will save the firm in case of failure.
D
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Starting from long-run equilibrium, a large tax cut will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; higher; higher B. expansionary; higher; potential C. recessionary; higher; potential D. recessionary; lower; lower
The curvature of an economy's production possibilities curve represents:
A) an increasing marginal cost of producing both goods. B) an increasing opportunity cost of producing each good. C) diminishing marginal returns to inputs. D) increasing terms of trade between both goods.
Why do some firms practice price discrimination? Relate your answer to the common practice of public colleges charging lower tuition to in-state students and higher tuition to out-of-state students
What will be an ideal response?
Unemployment due to the normal processes of quitting and searching for jobs is called ________ unemployment
A) turnover B) mismatch C) cyclical D) natural