In what way can liability rules lead to a more efficient outcome? ...

[karateprodigy]

In what way can liability rules lead to a more efficient outcome?
 
  What will be an ideal response?

Question 2

Suppose there is a bank panic. Which of the following would not be a consequence of this bank panic?
 
  A) Individual banks would have to shrink the value of loans they made.
  B) The economy would likely enter into a recession.
  C) Bank total reserves would decrease.
  D) Bank checking account balances would decrease.
  E) Required reserves would increase.

[sierramartinez]

Answer to Question 1

Liability rules are designed to force decision makers to internalize an externality. They provide an incentive for individuals to weigh both the actual and potential costs and benefits of their actions.

Answer to Question 2

E

[karateprodigy]

Excellent

[ghepp]

TYSM