The U.S. government, like many governments throughout the world, bailed out large financial institutions that were thought to be too big to fail during the 2008 financial crisis.
Some critics of the bailouts argued that these policies created a moral hazard problem; banks would undertake too many risky projects if they knew that the government would bail them out if the project failed. This question explores this moral hazard problem. a. Suppose a bank has the opportunity to invest in a risky project. If the project is successful, the bank will earn 80; if it is unsuccessful, the bank will lose 100 . The probability that the project will be successful is 0.5 . What is the expected value of investing in this project? If the bank is risk neutral, will the bank make this investment? b. Now suppose the government has a policy that helps banks that are suffering losses. Under this policy, the government will give a bank 30 percent of the bank's losses if a project is unsuccessful. Thus, if the project in this problem is unsuccessful, the government will give the bank 0.30 x 100, or 30 . What is the expected value of investing in this project? If the bank is risk neutral, will the bank make this investment?
Question 2
If in the market for peaches the supply curve has shifted to the left
A) the quantity of peaches supplied has decreased. B) the quantity of peaches supplied has increased.
C) the supply of peaches has increased. D) the supply of peaches has decreased.
Areas of Mediterranean shrubland in southern California periodically burn over large areas, destroyi
Example of a cladogram, or branching order, of the New World monkey Superfamily Ceboidea.
Oil Refineries Are Large and Complex Facilities
Large families on U.S. farms used to be common. Children helped plant and harvest crops, take care ...
From this 1946 photo, you can see how computers have changed. This is the ENIAC, the world’s first ...
Anatomy of the Large Intestine (colon)