Banks Deal with Problems of Adverse Selection by

question 74

Multiple Choice

Banks deal with problems of adverse selection by

• A)charging high interest rates.
• B)gathering information about the default risk of borrowers.
• C)making only short-term loans.
• D)making only long-term loans.

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Definitions:

John Maynard Keynes

A UK-based economist whose theories revolutionized both the practice and understanding of macroeconomics as well as state economic policies.

Liquidity Trap

A situation in an economy where interest rates are low or near-zero, causing monetary policy to become ineffective in stimulating the economy.

Speculative Demand

Demand for an asset not for its intrinsic value or use, but for the expectation of selling it at a higher price in the future to make a profit.

Created Money

Money that has been generated through the banking system's lending processes, beyond the base money originally introduced into the economy.