Which of the Following Is a Moral Hazard That a Central

question 100

Multiple Choice

Which of the following is a moral hazard that a central bank could face?

• A) Banks that are bailed out may have the incentive to take reckless decisions.
• B) Banks may maintain a higher-than-proportionate quantity of risk-weighted assets.
• C) Banks may accept large deposits from institutional investors.
• D) Banks may lend to non-banks and households at high rates of interest.

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Definitions:

Eroded Away

The process by which earth, rocks, or surface material are worn down and removed by the action of wind, water, or ice.

Butte

An isolated, steep-sided feature that rises above the surrounding landscape.

Angular Fragments

Pieces of rock or mineral that have sharp edges and pointy corners, typically resulting from mechanical weathering processes.

Tilted Rocks

Rocks that have been moved from their original horizontal position to a slanted orientation, typically as a result of tectonic forces.