A Bank Usually Treats the Moral Hazard Problem by Using

question 2

Multiple Choice

A bank usually treats the moral hazard problem by using all of the following, except:

• A) not making loans.
• B) requiring collateral.
• C) requiring down payments.
• D) restrictive covenants.

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Definitions:

Manufacturing Firms

Companies engaged in the industrial process of converting raw materials into finished products through human labor and machinery.

Disposable Income

The disposable income households have for expenditures and savings, post-income taxation.

C + I

A formula component in macroeconomics representing total private consumption (C) plus total private investment (I).

MPS

The marginal propensity to save, which is the fraction of an additional unit of income that is saved rather than spent.