Question: 1. (10 points) What is the principle-agent problem ? Why is it important in lending/borrowing? What other areas might be affected by a similar problem?

1. (10 points) What is the principle-agent problem? Why is it important in lending/borrowing? What other areas might be affected by a similar problem? Give an example and explain.

2. (5 points) What is the difference between wealthand income? Why is this distinction important?

3. (10 points) What is a central bank? How does it differ from a bank? What is its role in the economy?

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