Holly Goes to Her Bank to Take Out a Loan

question 24

Multiple Choice

Holly goes to her bank to take out a loan, and the bank agrees to the loan on the condition that Holly maintain a balance of $1,000 in her savings account with the bank. This is an example of a bank using a

• A)deductible as a way to mitigate the problem of moral hazard.
• B)compensating balance as a way to mitigate the problem of moral hazard.
• C)compensating balance as a way to mitigate the problem of adverse selection.
• D)restrictive covenant as a way to mitigate the problem of moral hazard.

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