During the 1960s, 1970s, and early 1980s, traditional bank profitability declined because of
A) financial innovation that increased competition from new financial institutions.
B) a decrease in interest rates to fight the inflation problem.
C) a decrease in deposit insurance.
D) increased regulation that prohibited banks from making risky real estate loans.
A
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The reason that this scenario perfectly illustrates the problem of "moral hazard" in particular is that
Suppose that engineers designed a revolutionary american football helmet that greatly increased the amount of protection for players' heads. Unfortunately however, after the new helmets were introduced, there was an INCREASE in head injuries! This happened because players started taking greater risks on the field due to the belief that the new helmets would protect them. A. A change in policy (i.e., the helmets) led to more risky behavior after the new policy was introduced. B. Football players are usually "risk seeking" individuals by nature. C. There was no conceivable way for the engineers to (scientifically) demonstrate that the new helmets were safer than the old ones. D. All of the above
Functional finance is:
A. a theoretical proposition, not a moral proposition. B. a proposition supported by public choice economists. C. based on empirical evidence that fiscal policy can be effective in smoothing business cycles. D. based on the political realities of voters wanting their government to respond to recessions.
Production Possibility Schedules for Two South Pacific Island NationsKiribatiTuvaluMangoesCoconutsMangoesCoconuts30001,20002004008001,2001008004002,40001,20003,600A comparative advantage in the production of mangoes is held by:
A. neither country. B. Tuvalu. C. both countries. D. Kiribati.
Which of the following is NOT a goal of financial regulation?
A) ensuring the soundness of the financial system B) reducing moral hazard C) reducing adverse selection D) ensuring that investors never suffer losses