Why Was the Fed Reluctant to Rescue Insolvent Banks

question 50

Multiple Choice

Why was the Fed reluctant to rescue insolvent banks?

• A) It thought it may lead to moral hazard.
• B) It thought it may lead to adverse selection.
• C) It thought they were still liquid.
• D) It did not think they were insolvent.

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Definitions:

Efficiently

Conducting an activity in such a manner that it achieves the maximum output with the minimum input or resources, without waste.

Rival

An entity competing against another for the same objective or for superiority in the same field of activity.

Excludable

A feature of a product or service enabling its owner to exclude others from usage unless payment is received.

Property Rights

The legal rights to possess, use, and dispose of assets, including property and intellectual property.