What is adverse selection?
A) It refers to the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction.
B) It refers to the actions people take after they have entered into a transaction that make the other party to the transaction worse off.
C) It refers to the private, self-interested actions people that people pursue, which when taken collectively leads to a loss in economic surplus.
D) It refers to the actions people take before they enter into a transaction so as to mislead the other party to the transaction.
A
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Suppose the Fed announced a policy of rapid growth in the money supply in 2004, but then put the brakes on money expansion without any announcement. If in 2005, Fed officials announce again that an expansion is planned, it is most likely that:
a. people will believe in the announcement since the conditions that created a need for the expansion are probably still in effect. b. people will believe in the announcement since they consider that having failed to implement the expansion previously, the Fed still plans to do so. c. people will not believe in the announcement since they consider that the conditions that created a need for the expansion must have changed in the meantime. d. people will not believe in the announcement since they consider that having failed to implement the expansion previously, the Fed will probably fail again e. there will be further uncertainty about the Fed following through on the policies it announces.
Demand for a good will always increase when
a. the price of a complementary good falls b. the price of a substitute good falls c. tastes change d. incomes decrease e. the price of the good falls