In response to the financial crisis that began in 2007, the government began to bail out banks deemed "too big to fail." Critics of this action argued that this would create the prospect of future bailouts and encourage banks to be fiscally irresponsible
in the future. This illustrates:
A. the adverse selection problem.
B. the moral hazard problem.
C. the principal-agent problem.
D. logrolling.
Answer: B
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Which of the following will tend to socialize losses and privatize gains?
A. Lowering interest rates to encourage private borrowing and investment. B. Government regulation to promote human safety and environmental protection. C. Government creating projects rather than supporting private efforts. D. Government guarantees to private investors that they will get their money back even if the company fails.
Economic efficiency is the primary guide in answering which of the fundamental questions in a market economy?
A. What will be produced? B. How is the output to be produced? C. How can the system accommodate change? D. Who is to receive the output?