2. How does the free-rider problem aggravate adverse selection and moral hazard problems in
An example of how the free-rider problem aggregates adverse action is how in the stock market,
some people will purchase inf
Unit II problem set
4. How do standard accounting principles help financial markets work more efficiently?
Standard accounting principles make profit verification easier because the principles are
reducing adverse selection and moral ha
2. What is the basic activity of banks?
The basic activity of banks are to accept monetary deposits from customers, store the funds of
savers by providing basic FDIC insured investment accounts like savings accounts and
certificates of de
Problem Set 1
1. Why are financial markets important to the health of the economy?
Financial markets establish a balance for saving/investing and borrowing. They have significant
control over these two areas which may determine the