This topic contains a solution. Click here to go to the answer

Author Question: The marginal propensity to consume out of income A) is larger than one. B) is equal to one. C) ... (Read 84 times)

oliviahorn72

  • Hero Member
  • *****
  • Posts: 579
The marginal propensity to consume out of income
 
  A) is larger than one.
  B) is equal to one.
  C) is smaller than one.
  D) varies around one.

Question 2

How is asymmetric information related to asset-price bubbles?
 
  What will be an ideal response?



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

succesfull

  • Sr. Member
  • ****
  • Posts: 339
Answer to Question 1

C

Answer to Question 2

If it were possible for saver-lenders to know the true value of financial assets, they would never be tempted to pay more than the asset is truly worth. In reality, though, savers know too little and must make the best of the available information. When the prices of certain assets are rising, savers may interpret this as a signal that the assets' fundamental value is rising. Because savers know that they and other savers don't know for sure whether the fundamental value is rising nor how high the price might go, they may expect to profit from the price increase. Asymmetric information forces lenders to extend credit on the basis of creditworthiness, rather than unobservable and/or unverifiable aspects of the specific purpose of the loan. An increase in asset prices, regardless the cause, enhances the creditworthiness of holders of such assets. Moreover, the belief  shared by lender and borrower alike  that possession of high-value assets reduces the probability of default may inspire the latter to choose risky behaviors and the latter to remain ignorant or complacent. So long as financial markets reward holders of rising-price assets, the price will continue to rise.




oliviahorn72

  • Member
  • Posts: 579
Reply 2 on: Jun 30, 2018
Wow, this really help


kalskdjl1212

  • Member
  • Posts: 353
Reply 3 on: Yesterday
Excellent

 

Did you know?

Liver spots have nothing whatsoever to do with the liver. They are a type of freckles commonly seen in older adults who have been out in the sun without sufficient sunscreen.

Did you know?

The Food and Drug Administration has approved Risperdal, an adult antipsychotic drug, for the symptomatic treatment of irritability in children and adolescents with autism. The approval is the first for the use of a drug to treat behaviors associated with autism in children. These behaviors are included under the general heading of irritability and include aggression, deliberate self-injury, and temper tantrums.

Did you know?

People about to have surgery must tell their health care providers about all supplements they take.

Did you know?

The average older adult in the United States takes five prescription drugs per day. Half of these drugs contain a sedative. Alcohol should therefore be avoided by most senior citizens because of the dangerous interactions between alcohol and sedatives.

Did you know?

The Romans did not use numerals to indicate fractions but instead used words to indicate parts of a whole.

For a complete list of videos, visit our video library