In Situations Where Asymmetric Information Problems Are Not Severe

question 31

Multiple Choice

In situations where asymmetric information problems are not severe,

• A) the money markets have a distinct cost advantage over banks in providing short-term funds.
• B) the money markets have a distinct cost advantage over banks in providing long-term funds.
• C) banks have a distinct cost advantage over the money markets in providing short-term funds.
• D) the money markets cannot allocate short-term funds as efficiently as banks can.

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Definitions:

Allocative Efficiency

A state of the economy in which production represents consumer preferences; every good or service is produced up to the point where the last unit provides a utility level equal to the cost of producing it.

Productive Efficiency

A situation where the economy or an economic system operates in a way that it cannot produce more of one good without affecting the production of another good.

Voting Paradox

The voting paradox, or Condorcet paradox, illustrates a situation in a voting system where collective preferences can be cyclic, even if the individual preferences are non-cyclical.

Voter Failure

A situation where voters make an uninformed or poor choice, often due to lack of information or misleading information, that does not align with their interests.