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.

Distinguish between different responses to aversive events and their outcomes.

Analyze the effectiveness of punishment in suppressing or modifying behavior.

Understand the factors affecting the acquisition and performance of escape and avoidance responses.

Grasp the theoretical perspectives on punishment, including its effectiveness and limitations.

---

Definitions:

Usury Statute

Laws that set the maximum interest rates that can be charged on loans.

Maximum Rate

The highest allowable interest rate or charge on a loan or financial contract as specified by law.

Covenant Not to Compete

A clause in an employment or business agreement that prohibits one party from competing against another for a certain period and in a specific geographic area.

Reasonableness

A standard of fairness, appropriateness, and rationality often used in legal and ethical judgments.