Petra has an automobile accident and finds that as a result her auto insurance premium will increase by 25%. This is an example of an adjustable premium that insurance companies often use as a mechanism to combat

a) moral hazard.

b) free-riders.

c) adverse selection. d) short-sightedness.

In the country of Trivia, it is widely believed that the marginal propensity to consume is 0.75. This means that a onetime increase in spending of $50 billion will result in an increase in GDP equal to

a) $66.67 billion

b) $100 billion

c) $200 billion d) $50 billion

Rachel goes for a job interview and knows a lot about the job she is applying for. The woman who interviews her is filling in for another employee and knows very little about Rachel. We might say the woman conducting the interview is likely to have what kind of situation?

a) The interviewer is in a situation of moral hazard, since Rachel may turn out to be a poor employee.

b) The interviewer has systemic information, since she can ask probing questions of Rachel.

c) The interviewer is facing adverse selection, since she knows nothing about Rachel.

d) The interviewer has asymmetric information as she knows less about Rachel than Rachel knows of herself.