Moral Hazard and Adverse Selection Problems Increased in Prominence in the 1980s

question 20

Multiple Choice

Moral hazard and adverse selection problems increased in prominence in the 1980s

• A)as deregulation required savings and loans and mutual savings banks to be more cautious.
• B)following a burst of financial innovation in the 1970s and early 1980s that produced new financial instruments and markets,thereby widening the scope for risk taking.
• C)following a decrease in federal deposit insurance from $100,000 to $40,000.
• D)as interest rates were sharply decreased to bring down inflation.

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Definitions:

Tax Policy

The set of laws and regulations governing how taxes are collected, managed, and utilized by a government.

Tax Revenue

The income that is gained by governments through taxation, which is used to fund public services, infrastructure, and government operations.

Marginal Rate Of Substitution

The rate at which a consumer is willing to trade one good for another while maintaining the same level of utility.

Marginal Rate Of Transformation

The rate at which one good must be sacrificed to produce one additional unit of another good, holding technology and resources constant.