Moral Hazard Problems Increased in Prominence in the 1980s

question 102

Multiple Choice

Moral hazard 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.

---

Definitions:

Fair Market Value

The estimated price at which an asset would sell in the marketplace when both buyer and seller are reasonably knowledgeable and willing parties.

Accountant

A professional who performs accounting functions such as audits or financial statement analysis. Accountants can also advise on financial strategies and tax planning.

Gross Income

The total income earned by an individual or a business before any deductions or taxes are taken out.

Political Subdivision

An administrative division of a country that is granted certain powers and responsibilities by legislation, such as a city, county, or district.