The Contagious Effect

question 43

Multiple Choice

The contagious effect:

• A) stems from the positive correlation in FI returns.
• B) results when interest rate risk increases credit risk and liquidity risk exposures.
• C) occurs when liquidity risk problems at bad banks damages well-run banks.
• D) is completely eliminated by government provided deposit insurance against bank runs.

---

Definitions:

Equilibrium Price

The price at which the quantity of a good or service demanded equals the quantity supplied, leading to market stability where there is no excess supply or demand.

Consumption Tax

A tax on the spending on goods and services purchased by consumers.

Income

Regular revenue generated through employment or by making investments.

Goods and Services

Refers to the physical products and intangible benefits that fulfill the needs or wants of consumers.