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:

Average Variable Cost

The total variable costs (costs that change with production levels) divided by the quantity of output produced.

Output

The total amount of goods or services produced by a firm, industry, or economy in a given period, often used as an indicator of productivity and economic health.

Variable Cost

Costs that change in proportion to the level of output or activity in a company’s production or operations.

Average Variable Cost

The total variable cost per unit of output, which varies with the level of production.