A Common Argument in Favor of Government Rescues of Large

question 27

Multiple Choice

A common argument in favor of government rescues of large banks is that rescues can

• A)reduce systemic risk in the financial system.
• B)encourage banks to avoid risk.
• C)ensure that bank executives are properly compensated.
• D)prevent the moral hazard problem.

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Definitions:

Creditors

Individuals or institutions to whom money is owed by a debtor for goods, services, or loans provided.

Investors

Persons or organizations that invest funds anticipating financial gains in return.

Balance Sheet

A financial statement that presents a company's assets, liabilities, and equity at a specific point in time, providing a snapshot of its financial condition.

Stockholders' Equity

Stockholders' equity represents the ownership interest of shareholders in a company, calculated as total assets minus total liabilities.