A Financial Crisis Occurs When an Increase in Asymmetric Information

question 45

Multiple Choice

A financial crisis occurs when an increase in asymmetric information from a disruption in the financial system ________.

• A) causes severe adverse selection and moral hazard problems that make financial markets incapable of channelling funds efficiently
• B) allows for a more efficient use of funds
• C) increases economic activity
• D) reduces uncertainty in the economy and increases market efficiency

---

Definitions:

Leftover Income

Leftover Income refers to the amount of income remaining after all expenses and taxes have been paid.

Budget Constraint

An economic model that represents all the combinations of goods and services a consumer can afford given their income and the prices of goods.

Bundle

A collection of products or services sold as a single package deal, often at a discounted price.

Budget

A financial plan for a defined period, outlining expected revenues and expenditures.