A moral hazard situation arises in the lender of last resort function because:
A. a central bank finds it difficult to distinguish illiquid from insolvent banks.
B. a central bank usually undervalues the assets of a bank in a crisis.
C. a central bank usually will only make a loan to a bank after it becomes insolvent.
D. the central bank is the first place a bank facing a crisis will turn.
Answer: A
You might also like to view...
The bowed shape of the per-worker production function is caused by
A) wealth effects that reduce labor supply. B) diminishing marginal productivity of capital. C) increasing marginal productivity of labor. D) increasing marginal productivity of capital.
Most of the migration in the world involves people who are moving from countries with relatively ____ GDP per capita to countries with relatively _____ GDP per capita.
a. high; low b. low; low c. low; high d. high; high
The law of demand is graphically depicted as a(n)
a. vertical demand curve b. horizontal demand curve c. downward-sloping demand curve d. upward-sloping demand curve e. curved demand line
If an economist wants to make a prediction about the effects of a change in disposable income on the change in consumption spending based on historical data, she must assume that
a. the future will closely resemble the past. b. consumption and disposable income will be negatively related. c. the consumption function will have a downward slope. d. as disposable income increases, consumer spending will remain constant.