Suppose a Bank Purchases $100 of an Asset

question 69

Multiple Choice

Suppose a bank purchases $100 of an asset. To finance this purchase, it uses $99 dollars of borrowed funds and $1 of bank capital. To what does this lead?

• A) moral hazard
• B) adverse selection
• C) Ricardian equivalence
• D) the butterfly effect
• E) irrational exuberance

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Definitions:

Dialysis Tubing

A semi-permeable membrane tubing used in separation techniques and dialysis to remove impurities from blood or to demonstrate osmosis.

Filtration Membrane

A barrier in the nephron of the kidney through which blood is filtered, allowing certain substances to pass while retaining others.