Explain why "bad cars drive out the good ones" in the market for used cars
What will be an ideal response?
Suppose there are two kinds of cars available in the used car market: high-quality cars (peaches) and low-quality cars (lemons). All cars look exactly the same but there is asymmetric information; only the seller actually knows whether he has a lemon or a peach. If both peaches and lemons are available, buyers would not be willing to offer a very high price for a used car because there is a chance they are buying a lemon. The owners of peaches might be unwilling to sell at this price and so in equilibrium only lemons are bought and sold.
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After the financial crisis of 2008, how did some Eurozone governments finance the bailout of their financial sectors?
A) by raising taxes B) by issuing new government bonds, which were purchased by private banks, funded by ECB lending C) by printing more domestic currency to accompany infusions of euros from the ECB D) by selling foreign currency reserves and gold
The table above gives a nation's investment demand and saving supply schedules. It also has the government's net taxes and expenditures. When the real interest rate is 4 percent, the supply of loanable funds is equal to
A) $10 billion. B) $50 billion. C) $90 billion. D) $80 billion. E) $30 billion.