The Situation in Which One Party to a Transaction Takes

question 163

True/False

The situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction is known as adverse selection.

---

Definitions:

Tight Monetary Policy

A central bank policy aimed at reducing inflation and slowing down the growth in the money supply by raising interest rates and other measures.

Required Reserve Ratio

The fraction of deposits that banks are required by law to keep on hand as reserves or with the central bank.

Discount Rate

The interest rate charged by central banks to commercial banks for loans.

Government Securities

Financial instruments issued by a government to raise funds from investors, promising to pay back with interest, including treasury bonds, bills, and notes considered low-risk investments.