Suppose That an Increased Risk of Mortgage Defaults Lowers the Expected

question 55

Multiple Choice

Suppose that an increased risk of mortgage defaults lowers the expected profitability of banks.Then we would expect to see

• A)the demand for bank stocks rise which would raise the prices of bank stocks.
• B)the demand for bank stocks rise which would reduce the prices of bank stocks.
• C)the demand for bank stocks fall which would raise the prices of bank stocks.
• D)the demand for bank stocks fall which would reduce the prices of bank stocks.

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Definitions:

Outgroup Favoritism

The phenomenon where a person prefers and supports the members of a group they are not part of over their own group.

Social Identity

An individual's sense of who they are based on their group memberships, such as social, cultural, and occupational groups.

Ingroup Bias

The inclination to prefer individuals from one's own group rather than those from outside groups.

Hindsight Bias

A cognitive bias that causes people to overestimate their ability to predict events that have already happened.