Refer to Scenario 17.4. Moral hazard arises in this situation because once the firm
A) pays the premium that is based on the .005 probability, it has no incentive to spend the additional $1000 for the flood control system, so the true probability of loss is no longer .005.
B) pays the premium that is based on the .01 probability, it has no incentive to spend the additional $1000 for the flood control system, so the true probability of loss is no longer .01.
C) provides for flood control, it has less incentive to spend $5000 on premiums, leaving itself underinsured.
D) provides for flood control, it has less incentive to spend $10,000 on premiums, leaving itself underinsured.
E) provides for flood control, it will consider that a substitute for insurance and not be able to deal with the loss from a flood should it occur.
A
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The core inflation rate measures changes in the
A) prices of consumer goods except health care. B) prices of all consumer goods. C) prices of consumer goods except food and fuel. D) price of only two consumer goods: food and fuel. E) prices of all the "core" goods and services a typical family buys.
If real interest rates in the US are increasing faster than real interest rates in other countries, which of the following is most likely to occur?
a. the demand for dollars will decrease, and the value of the dollar will increase b. the demand for dollars will increase, and the value of the dollar will increase c. the supply of dollars will decrease, and the value of the dollar will increase d. the supply of dollars will increase, and the value of the dollar will increase e. the supply of dollars will increase, and the value of the dollar will decrease