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:

Successful Recruitment

The process of effectively identifying, attracting, and hiring the best candidates for a job.

Labour Unrest

Discontent or conflict within the workforce usually due to poor working conditions, low pay, or lack of rights.

Severance Pay

Payment to a worker upon permanent separation from a company.

Permanent Separation

The termination of an employee's position within a company without the expectation of return.