In: Economics
in what way can the stock market affect the whole economy?
a) is an important source of funds for corporation
b) it can affect consumer and business sentiment
c) It is an important factor effecting consumer wealth and thus consumer spending
Adverse slecetion and moral hazard are examples of
a) transaction costs
b)information costs
c) symmetric information
d) financial market efficiency
Which of the following is an example of adverse selection?
a) a homeowner with large fire insurance policy allows the wiring in her house to deteriorate
b) a woman with a large life insurance policy takes up sky diving
c) your brother-in-law borrows $20,000 from you to open a pizza parlor, but spending it gambling
d) A man with a bad heart condition buys a large life insurance policy
Ans.1- (B)
Stock prices influence consumer and business confidence, which in turn affect the overall economy.
Ans.2- Adverse selection and moral hazard are examples of asymmetric information.
Ans.3- A man with a bad heart condition buys a large life insurance policy
No other examples exhibits problem of adverse selection.