The Moral Hazard Problem Refers to

question 14

Multiple Choice

The moral hazard problem refers to

• A)difficulty banks have in satisfying the government's reserve requirement.
• B)depositors making a run on the bank, even though the bank is insured.
• C)banks taking on more risk in their lending because they know their depositors are insured.
• D)banks issuing bank notes that compete with the government's currency.

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Definitions:

Expected Return

Return that an asset should earn on average.

Consumer Decision Making

The process by which consumers identify their needs, gather information, evaluate alternatives, and make choices regarding products and services.

Shipping Costs

Expenses involved in transporting goods from one location to another.

Bias

A tendency, inclination, or prejudice towards or against something or someone, often in a way considered to be unfair.