Signals can help prevent adverse selection as long as a false signal is costly to the person sending it
What will be an ideal response?
True. If false signals can be made at little cost to the perpetrator, the signals are meaningless. Signals are believed only when they are credible.
You might also like to view...
Suppose there is a reduction in cash flow. This suggests that
A) firms have decreased their expectations of future profits. B) the real interest rate has increased. C) the rate of depreciation has increased. D) current profits have decreased. E) all of the above
The political business cycle refers to the possibility that:
a. incumbent politicians will be reelected regardless of the state of the economy. b. politicians will manipulate the economy to enhance their chances of being reelected. c. there are more recessions prior to elections. d. recessions coincide with election years.