Bank Failures Tend to Occur Most Often During Periods Of

question 18

Multiple Choice

Bank failures tend to occur most often during periods of:

• A) stock market run ups when, like many companies, banks tend to be overvalued.
• B) high inflation when the fixed rate loans of many banks cause their real returns to decrease.
• C) recessions when many borrowers have a difficult time repaying loans and lending activity slows.
• D) wars and other civil unrest.

---

Definitions:

Efficient Behavior

Efficient behavior refers to actions that maximize the desired outputs or results with the least amount of wasted effort or resources.

Insurance Industry

The sector of the economy that provides coverage against financial loss, including various types of insurance products and services.

Moral Hazard

The risk that one party to a contract can change their behavior to the detriment of another after the contract has been concluded.

Adverse Selection

A situation where sellers have information that buyers do not, or vice versa, often resulting in a market failure.