1) If one economic agent possesses more information that their fellow transactor________. A) economic transactions cannot occur. B) the moral hazard problem has been eliminated. C) the adverse section problem has been eliminated. D) asymmetric information exists. 2) Asymmetric information discourages the movement of funds from savers to borrowers, because ________. A) big risks have high payoffs B) the safe choice is always preferable to the risky choice C) taking risks is inefficient D) the loss arising from a failed project must be borne by the borrower, rather than the lender 3) Suppose you have money to lend, but will do so only if you are compensated for the risk of default. If you set a high interest rate on your loan, a likely consequence is that ________. A) safe borrowers will look elsewhere, and only risky borrowers will find your terms attractive B) risky borrowers will look elsewhere, so your money is more likely to go to a safe borrower C) competition from other lenders will force you to lower your interest rate D) you will be prosecuted for predatory lending 4) Adverse selection exists because________. A) moral hazard exists. B) asymmetric information exists. C) of government regulation. D) financial innovation continually occurs. 5) Which of the following statement is untrue? A) assets equal liabilities plus net worth. B) households and firms are lenders and borrowers in the flow of funds. C) government regulation is the major cause of asymmetric information problems. D) pension funds and insurance companies are financial intermediaries 6) Suppose you hear of a great deal on a used car and wonder, “Why is the price so low?” This might be an instance of ________. A) tyranny of collateral B) adverse selection C) the free rider problem D) moral hazard 7) Providers of health care insurance require applicants to provide information on their medical history. The purpose may be to minimize which of the following problems? A) moral hazard. B) adverse selection. C) government taxes. D) opportunity cost. 8) The incentive to collect information is undermined by the ________. A) opportunity cost of collecting information. B) asymmetric character of information flows. C) free rider problem. D) Willamette effect. 9) Which of the following is an example of the free-rider problem? A) Warren Buffett B) a stow-away C) banks that will not lend to anyone they haven’t known for years D) No one takes out the trash, because everyone expects that someone else will. 10) Assume that the riskiest individuals in a given population are the ones most likely to apply for health insurance. In this situation a provider of health insurance faces the problem of ________. A) moral hazard B) opportunity costs C) tertiary impedence D) adverse selection