Acme Widget Tells Investors It Wants to Build a New

question 49

Multiple Choice

Acme Widget tells investors it wants to build a new widget factory and sell investors $10,000,000 in bonds to finance it. Once they have raised the $10,000,000 the owners of Acme Widget use the funds to finance a trip to Atlantic City to try out a new scheme they have devised to win at blackjack. This is an example of

• A)the adverse selection problem in financial markets.
• B)the moral hazard problem in financial markets.
• C)the difficulty lenders have in distinguishing good from lemon firms.
• D)the problems with using rational expectations in financial markets.

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Definitions:

Latent Learning

A form of learning that occurs without any obvious reinforcement of the behavior or associations that are learned, becoming apparent when there is an incentive to demonstrate it.

Spontaneous Recovery

The reappearance of a previously extinguished conditioned response after a pause, without the need for further conditioning.

Classical Conditioning

A method of learning where, through continuous pairing, a reaction initially induced by a second stimulus comes to be provoked by the first stimulus instead.

Extinction

In psychology, the gradual weakening and disappearance of a conditioned response when the conditioned stimulus is repeatedly presented without the unconditioned stimulus.