An Individual Holds $10 000 in a Non-Interest-Earning Checking Account,and

question 2

Multiple Choice

An individual holds $10 000 in a non-interest-earning checking account,and the overall price level rises significantly.Other things constant,we would expect

• A)the individual's real wealth to decrease and consumption to diminish.
• B)the individual's stock of real wealth to decrease but real national income to increase.
• C)no change in the individual's real wealth but a decline in real national product.
• D)the individual's wealth to increase.

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Definitions:

Moral-Hazard Problem

A situation where one party engages in risky behavior knowing that it is protected against the consequences, often because another party bears the cost of those actions.

Moral-Hazard Problem

The moral-hazard problem arises in situations where one party's willingness to take risks is increased because the negative consequences of those risks will be borne by another party.

Principal-Agent Problem

A dilemma in economics where one party (agent) is supposed to act in the best interest of another (principal) but may have a tendency to act in their own interest.

Asymmetric Information

A situation in which one party in a transaction has more or superior information compared to the other.