Question

1. The efficient market hypothesis suggests that:

a) Congress is unable to pass effective laws

b) the Fed will be unable to pop an asset price bubble

c) asset price bubbles are a normal part of an economy

d) asset price bubbles won't occur

2. Moral hazard is a problem that arises when:

a) people are required to bear the negative consequences of their actions

b) people don't have to bear the negative consequences of their actions

c) people benefit from the negative actions of others

d) government discourages companies from taking risks

Answer 1

1. Option D. asset price bubbles won't occur

Explanation: According to the efficient market hypothesis, the market is efficient and asset prices reflect all available information.

2. b) people don't have to bear the negative consequences of their actions

Explanation: In moral hazard, people assume added risks because they don't have to bear the negative consequences.