One Reason for the Controversy Surrounding the Decision by the European

question 21

Multiple Choice

One reason for the controversy surrounding the decision by the European Central Bank to buy Greek bonds was that

• A) it may increase moral hazard by encouraging other European governments to issue more debt than private investors were willing to buy.
• B) it may increase adverse selection by encouraging other European governments to issue more debt than private investors were willing to buy.
• C) it may result in higher risk premiums as private investors anticipate a default by Greece.
• D) it may worsen the Greek recession by increasing Greek interest rates.

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Definitions:

Secondary Process

A term from psychoanalytic theory referring to the rational and conscious thought processes that are involved in problem solving and decision making.

Primary Process

A mode of thinking primarily associated with the unconscious and characterized by the free and associative flow of thoughts and impulses.

Rational

Pertains to the quality of being based on or in accordance with reason or logic; thinking and acting sensibly and logically.

Fixation

An obsessive focus or attachment to a person, concept, or object, often hindering emotional and psychological development.