Insurance companies are not permitted to require AIDS tests as a precondition for coverage, so they do not know whether or not the people they insure have already contracted HIV (the virus that causes AIDS). This situation is an example of
a. signaling.
b. adverse selection.
c. the principal-agent problem.
d. moral hazard.
b. adverse selection.
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In the long run, the firms in a perfectly competitive market
A) maximize their profit. B) make an economic profit. C) display price setting behavior. D) are protected by barriers to entry.
As a general rule, if pollution costs are external, firms will produce:
a. too little of a polluting good. b. too much of a polluting good. c. an optimal amount of a polluting good. d. cannot be determined without additional information.
The real interest rate is the difference between ________ and ________.
A. the interest rate on a loan; the inflation rate B. nominal interest rate; depreciation C. frictional inflation rate; structural inflation rate D. inflation rate; GDP deflator
Suppose that initially there is no public debt. Using the above table, what is the public debt as a percentage of GDP in Year 4?
A) 5.8 percent B) 7.8 percent C) 3.6 percent D) 2.0 percent