How does the lender of last resort potentially create a moral hazard problem?
What will be an ideal response?
The lender of last resort function provided by a central bank will have a bank turning to the central bank for a loan after all other options are exhausted. The bank manager knows that the central bank will want to avoid a widespread bank panic and will be generous in evaluating the value of the bank's assets and to grant a loan even if it suspects the bank may be insolvent. Knowing this, bank managers will tend to take too many risks.
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Which of the following leads to a movement along the supply curve for shredded wheat but does not shift the supply curve for shredded wheat?
A) a fall in the price of shredded wheat B) an increase in the cost of machinery used to shred wheat C) perfect weather conditions that resulted in a large wheat crop D) a decrease in the number of shredded wheat producers
The marginal cost curve of pollution abatement is
A) downward sloping. B) upward sloping. C) horizontal. D) vertical.
If there is excess money supply, people will
a. deposit more into interest-bearing accounts, and the interest rate will fall. b. deposit more into interest-bearing accounts, and the interest rate will rise. c. withdraw money from interest-bearing accounts, and the interest rate will fall. d. withdraw money from interest-bearing accounts, and the interest rate will rise.
Opportunity cost exists because of
A. self-interest. B. scarcity. C. poverty. D. greed.