Explain why inflation is a way for governments to default on a portion of the debts they owe.
What will be an ideal response?
If a government forces the central bank to buy its bonds the quantity of money in circulation increases, sparking inflation. This rise in inflation benefits fiscal policymakers because it reduces the value of the bonds the government has already sold, making them easier to repay. In effect, because payment will occur in units of money that have lost value, the government has defaulted on a portion of the debts it owes.
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Which of the following compensation schemes can be explained as an attempt to solve a principal-agent problem?
A) Real estate agents are paid on a strict commission basis; if they don't sell a client's listed property they don't get paid. B) Personal injury lawyers often work on a contingency basis. If the lawyer wins the case they receive a significant share of the award; if the lawyer doesn't win the case the lawyer doesn't get paid. C) Traveling sales people, who are costly and difficult to monitor, generally receive a significant share of their compensation in the form of commissions or bonuses for meeting sales targets. D) All of the above compensation schemes attempt to solve a principal-agent problem.
Why does the government intervene in the market for research, especially medical research?
What will be an ideal response?