Adverse selection occurs in the market for used cars because used car buyers
A) tend to have more accidents than new car buyers.
B) have more information than used car sellers.
C) have less information than used car sellers.
D) have less incentive to maintain the value of their cars than new car buyers.
C
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The principal-agent problem is
A) often less severe for partnerships than for corporations. B) often more severe for partnerships than for corporations. C) severe for corporations but nonexistent for partnerships. D) most severe for sole proprietorships.
Consider a large open economy that has a positive current account balance. (a) Suppose the domestic government increases the tax rate on firm revenues
Draw a diagram to explain the effects on the world real interest rate, saving in each country, investment in each country, and the current account balance in each country in equilibrium. Explain your work. (b) In addition to the tax increase in part (a), suppose now that the foreign government increases lump-sum taxes on individuals. Draw a new diagram to incorporate the overall effects of both tax changes and explain the effects (from the initial equilibrium with neither tax change) on the world real interest rate, saving in each country, investment in each country, and the current account balance in both countries. Explain your work.