How Can the Regulators Reduce the Effects of Moral Hazard

question 63

Multiple Choice

How can the regulators reduce the effects of moral hazard in the absence of depositor discipline?

• A)By allowing DIs to undertake high-risk high-return asset investments.
• B)By basing deposit insurance premiums on a DI's deposit size.
• C)By charging explicit deposit insurance premiums and implicit premiums on DIs.
• D)By exhibiting excessive capital forbearance.
• E)By implementing prompt corrective action capital zones based on rules rather than discretion.

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Definitions:

Null Hypotheses

A statistical hypothesis that assumes no significant difference or effect exists within a set of given observations.

Type I Error

The error that occurs when a null hypothesis is incorrectly rejected when it is actually true, often referred to as a "false positive."

Type II Error

The statistical mistake of failing to reject a false null hypothesis. It's also known as the error of accepting a false negative result.

Type I Error

Incorrectly refuting a correct null hypothesis, also labeled as a "false positive."