How can improvements in statistical analysis of financial data cause the amount of information in financial markets to decline?
What will be an ideal response?
Statistical analysis is a process of drawing inferences from (preferably) large sets of data. When it is possible to predict outcomes such as the overall default rate within a pool of loans, constructing such pools is cheaper and more profitable than attempting to analyze and manage each loan individually. Quantitative scores and rough categorizations replace detailed and largely qualitative "dossier" for each borrower. Since ownership of the loan assets is both aggregated and dispersed, no one has incentive nor ability to monitor the behavior of borrowers. Lenders receive less information about borrowers, and less information about their fellow lenders.
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Hospitals announce that there are not enough nurses available to keep them fully staffed. Economically speaking, what does this announcement mean?
A) The market wage for trained nurses is currently above the equilibrium wage. B) There is currently a surplus of nurses in this market. C) The market wage for nurses will eventually rise to the market clearing wage. D) The market will adjust very rapidly to correct this imbalance because anyone can be a nurse without any training.
Which of the following will occur as a result of a tax increase?
A) private saving increases B) investment increases C) the trade balance improves D) the trade balance worsens E) the budget deficit increases