Adverse selection in insurance markets results in missing markets because people engage in riskier behavior once they are insured.
Answer the following statement true (T) or false (F)
False
Rationale: The tendency for people to behave differently when they are insured is moral hazard -- and adverse selection does not require moral hazard.
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Direct controls work only if the legal system imposes substantial penalties on violators.
Answer the following statement true (T) or false (F)
All else equal, an increase in the government's budget deficit accompanied by a decrease in corporate taxes would definitely result in
A) an increase in the equilibrium real interest rate. B) a decrease in the equilibrium real interest rate. C) an increase in the equilibrium level of saving and investment. D) a decrease in the equilibrium level of saving and investment.
Which of the following statements is most likely correct?
a. A nation may sometimes want a stronger exchange rate to stimulate aggregate demand and reduce a recession or to fight inflation. b. A nation may sometimes want a weaker exchange rate to stimulate aggregate supply and reduce a recession or a stronger exchange rate to fight inflation. c. A nation may sometimes want a stronger exchange rate to stimulate aggregate demand and fight inflation or a weaker exchange rate to reduce a recession. d. A nation may sometimes want a weaker exchange rate to stimulate aggregate demand and reduce a recession or to fight inflation.
An important assumption that is made when constructing a demand schedule is that
a. only price and quantity matter in determining demand. b. people always want a certain amount of a product. c. demand is too important to be left to the economists. d. all other determinants of demand are held constant. e. demand has a positive slope.