A Sharp Stock Market Decline Increases Moral Hazard Incentives

question 35

Multiple Choice

A sharp stock market decline increases moral hazard incentives

• A)since borrowing firms have less to lose if their investments fail.
• B)because it is immoral to profit from someone's loss.
• C)since lenders are more willing to make loans.
• D)reducing uncertainty in the economy and increasing market efficiency.

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Definitions:

Interest Rate

The part of a loan that incurs interest fees for the borrower, often shown as an annual percentage rate of the total amount borrowed.

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A state in which all factors of production and outputs are fully adjusted to each other, and all economic forces are in balance, with no surplus or shortage.

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A mixture of lime or gypsum with sand and water that hardens when dried, used for coating walls and ceilings.