Moral Hazard and Adverse Selection Problems Increased in Prominence in the 1980s

question 20

Multiple Choice

Moral hazard and adverse selection problems increased in prominence in the 1980s

• A)as deregulation required savings and loans and mutual savings banks to be more cautious.
• B)following a burst of financial innovation in the 1970s and early 1980s that produced new financial instruments and markets,thereby widening the scope for risk taking.
• C)following a decrease in federal deposit insurance from $100,000 to $40,000.
• D)as interest rates were sharply decreased to bring down inflation.

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Definitions:

Periodic Replenishment

Periodic Replenishment refers to the inventory management practice of ordering or producing goods at regular intervals, regardless of the inventory levels.

Continuous Review

A system of managing inventory where the stock levels are continuously monitored, with orders placed as soon as inventory drops to a predetermined level.

Safety Inventory

A quantity of stock kept on hand to prevent stockouts due to variability in supply or demand.

Product Availability

The extent to which a product can be purchased at any given time and location.