One Potential Weakness of the Coordination Failure Model as an Explanation

question 11

Multiple Choice

One potential weakness of the coordination failure model as an explanation of business cycles is that

• A) government policy is unpredictable.
• B) consumer behaviour is rational and predictable.
• C) that underlying shocks that cause business cycles are expectations that are essentially unobservable.
• D) money supply shocks are predictable.
• E) there are fluctuations between "good" and "bad" equilibria.

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Definitions:

Trust Companies

Financial institutions that act as agents for a trust to manage assets, execute trusts, and administer estates on behalf of their beneficiaries.

Agency Problems

Conflicts of interest between the principals (owners or shareholders) and agents (managers) of a company, often arising from differing motives or information asymmetry.

Control Problems

Issues that arise in contexts where one party (the principal) delegates tasks to another party (the agent), who may have different interests or information.

Proxy Fights

Efforts by a group of shareholders to alter company management or policies by persuading other shareholders to vote in a way that is contrary to the current management's wishes.