Consumers and fiRms Are Likely to Be More Responsive to Interest

question 16

True/False

Consumers and firms are likely to be more responsive to interest changes by the central bank in the short run than in the long run.

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Definitions:

Moral Hazard

A scenario in which an entity is prone to engage in risky behaviors knowing that another party will shoulder the consequences of such risks.

Adverse Selection

Adverse selection also pertains to the tendency of those in dangerous jobs or high-risk lifestyles to acquire life or health insurance to a greater extent than those with lower-risk profiles, thereby distorting the market.

Unobservable Actions

Actions taken by individuals or entities that cannot be seen or measured directly, often relevant in contexts of performance evaluation or trust.

Moral Hazard

The situation where one party to a transaction can take risks without having to suffer consequences, often because another party bears the cost of those risks.